There has been a huge amount of publicity about HMRC’s attack on partnerships in this year’s Budget, but the biggest question is what to do about the inevitable changes?
The first major change treats certain members of LLPs (limited liability partnerships) as employees, with major tax and cash-flow consequences. This will apply to ‘partners’ who have fixed income, or income that isn’t partly based on the partnership’s profits, who do not have significant influence and whose partnership fixed capital is insufficient. If you have clients that have partners who fail all 3 of these conditions, we can help you resolve the problems so that the impact of the new legislation is minimised.
The other change affects ALL partnerships that have mixed memberships of individuals and non-individuals. Usually, this means corporate members, although the new rules apply to trusts and other non-individuals in partnership, and the rules may apply to partnerships with only corporate partners, too. If there is no commercial reason for allocating profits to the company partner, HMRC can treat those profits as belonging to the individual, who will then have to pay income tax at up to 45% and Class 4 NICs on the profits, instead of the company only paying 20% corporation tax. We have a great deal of experience helping people decide how best to deal with these changes and how to unwind the structures efficiently, if that’s appropriate.
The new rules have applied since 6th April 2014, so you may need to act quickly!
Call or email Pete right away.