Partnerships and LLPS

For several years partnerships and LLPs have provided a very flexible business structure and in some cases have provided tax advantages, mostly because of their flexibility both in terms of tax and legal framework.

On 20th of May 2013 HM Revenue and Customs published  a consultation document  titled: “Patnerships: A review of two aspects of the tax rules”

This is a 38 page document which has the stated aim of looking at how to change the parts partnership tax rules to prevent the government losing tax arising from disguised employment through limited liability partnerships  (LLPs) and from certain arrangements involving allocation of profits and losses among partnerships.

This consultation was announced in the 2013 budget and the intention is that legislation will be introduced in the Finance Bill 2014 and the anti-avoidance legislation will apply with effect from 6 April 2014 relation to profits and losses that arise on or after that date.

The so-called disguised employment relationships arises in cases where a salaried member of an LLP who is treated as self-employed is in all intents and purposes an employee. There are various tests which determine that person’s  status but basically if he or she has no economic risk in the LLP and receives a salary as opposed to a profit share then that person is not really a partner and this will have implications as far as income tax and national insurance is concerned

The other area of focus is where partnerships or LLP’s have corporate partners which provide a tax advantage. This is referred to in the consultation as “mixed membership. ” There are many variants of the mixed membership type of arrangement.

The government’s intention is to bring you all the above arrangements general anti-abuse rule (GAAR).

 

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