Helping taxpayers understand UK partnership taxation, ranging from simple compliance and registration matters to complex anti-avoidance issues including the mixed membership rules, salaried member legislation or the disguised remuneration provisions.
The taxation of partnerships has faced immense scrutiny from HMRC in recent years since the changes to the partnership taxation rules were overhauled in 2014. The rules are complex anti-avoidance legislation that include mixed membership rules, salaried member legislation and disguised remuneration provisions. It has become increasingly important for taxpayers to not only stay abreast of their basic tax compliance obligations but to also have an understanding of complex anti-avoidance issues that can have a significant impact on individual partners if not dealt with appropriately.
Mixed Membership
The mixed membership rules introduced in 2014, affect partnership structures that have partners or members that are not individuals (e.g. limited company or trustees) and thus a ‘mixed membership’. The rules look to ensure that a corporate member does not receive an excess profit allocation compared to the other individual partners (given the lower rates of corporation tax compared to income tax in the UK) and that individuals partners do not receive an excess loss allocation, to enable them to claim loss relief, instead of the corporate member.
Salaried Members
The salaried member rules, also introduced in 2014, aim to ensure that only ‘true’ partners in a partnership are afforded the beneficial tax treatment. Where this is not the case, the legislation seeks to tax the individuals as employees, thus subjecting them to employer’s NIC and deduction at source.
Self-employed disguised remuneration
The self-employed disguised remuneration rules announced in 2016, came into effect in 2017 to capture schemes whose main purpose was the avoidance of income tax and NICs by self-employed individuals. The rules seek to tax benefits provided to self-employed individuals such as outstanding loan amounts (for loans made since April 1999).
How we can help:
- Assist businesses into identifying the most suitable structure based on its needs and consider the pros and cons of a partnership vs a corporate structure.
- Annual tax compliance, registration and submission of returns to HMRC for partnerships.
- Advice on implications of the mixed membership rules for LLP’s and any adjustments to profit allocations required for corporate and individual members.
- Review of salaried member rules for individual members including application of the three tests used by HMRC to determine whether an individual is a partner or an employee in disguise.
- Annual tax compliance for asset managers using the AIFMD deferral mechanism, submission of required documentation to HMRC and advice on tax payments.