Finally HM Revenue & Customs (HMRC) have published their consultation document on the taxation of partnerships and LLPs.
For some time it has been rumored that HMRC wanted a ‘root and branch’ review of the existing structures which they felt gave too many advantageous tax breaks for firms (especially those in the legal sector) who have taken advantage of the LLP route.
For position regarding salaries partners in the two structures is probably where the greatest difference lies as in a ‘traditional’ partnership these have always been treated as subject to PAYE, but with an LLP salaried partners are self-employed by statute. The effect of HMRCs “consultation” is that this special treatment for LLPs will change shortly.
HMRC have also looked at the lower tax regime that is enjoyed by having a corporate partner as a member of an LLP. Typically this structure has given firms the lower tax rates associated with a Limited Company whilst at the same time enabling the members to enjoy the other reliefs and flexibility available to partnerships.
Unfortunately whilst this is just a consultation document, HMRC have also made it abundantly clear that they expect new rules to come into force from April 2014!
There are a large number of firms who use LLPs for legitimate business purposes, and especially within the Legal sector they have proved very popular, often in conjunction with corporate members. One thing is for certain that they will be a lot less popular in the future, and there will be many who need to look closely at their existing arrangements to ensure they are not unduly penalised when new rules come into force.
Our Taxation and Legal Services teams are fully up to speed with HMRCs proposals and we will be delighted to discuss how the proposed changes may affect you and your future plans and we will be delighted to meet with you on a no obligation basis to go through your options. Simply call us on 0845 177 5500 or use our online contact form here.