HMRC Consultation: Partnership taxation: proposals to clarify tax treatment

10 August 2016

Yesterday HMRC published a consultation document entitled 'Partnership taxation: proposals to clarify tax treatment'. The consultation is open for 12 weeks until 1 November.

The consultation is a response to an OTS report, HMRC now feel that the current rules are not always clear when considering how modern partnership operate.

Who is the partner chargeable to tax? In certain cases the partners of an LLP registered at companies house are not the same as the partners reported to HMRC on the partnership tax return, this is as some partners claim to be acting as 'nominees' for others. The proposals clarify that a partner can not act as nominee or agent for another person.

Business structures that include partnerships as partners. Currently the reporting requirements can mean another partnership is shown on the partnership return as a partner and it is not immediately obvious who is taxable on that partnership profit share. The proposals are that the partnership partner should be 'look through' and each partner in it should be treated as a partner in the first partnership.

The investment management industry accounts for 1% of UK GDP, however these can often be structured as partnerships and this can cause administrative problems. The proposal is to improve administration for 'investment income only partnership' and is seeking views as part of the consultation.

Similarly where trading and property income is involved especially with foreign investors/partners it can sometime be difficult for the nominated partner to establish all the necessary details of the partners or establish their UTR's, the government seeks views on how to protect the exchequer, and proposes a possible payment on account towards the tax liability of anyone who cant be identified.

Profit Sharing arrangement - this is usually determined by a written profit sharing agreement, however it is not a legal requirement that this is in writing. The proposal is that the profit sharing ratios should be set by the partnership agreement, unless notified to HMRC by the nominated partner in writing or electronically.

Allocation of tax adjusted profit to partners - the government sees a risk here that the profit allocated per the accounts is not always the same as the allocation of the adjusted profit for tax purposes. Legislation is proposed to bring the two into alignment.

Non-chargeable persons - The current rules do not cover the situation where a partner is not within the charge to income or corporation tax, the government intends to clarify this.

If you are concerned about how this consultation may affect you or your clients then please do not hesitate to get in touch by calling 0203 039 3993.

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