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News - 28 February 2014

New LLP Tax rules are announced.

HMRC has published final guidelines for the legislation intended to stop partners pretending that they are self employed to avoid tax. Some avoidance schemes that were closed down in recent years involved misuse of partnership rules, HMRC has said.

But new rules are still likely to create financial and administrative challenges for LLPs. A partner will be considered an employee for tax purposes if all three of the following conditions are met:

  • 80% or more of their pay is guaranteed
  • the partner does not have “significant influence” over the affairs of the partnership
  • the partner pays less than 25% of their “fixed pay” to the partnership profit pool

Stuart Coleman, Manager of the Tax Department of ABDS comments:
“This is going to hit new or junior partners because they usually have most of their income guaranteed rather than from a share of their firm's profit. Partnerships’ tax bills are likely to rise.”

Firms that have to pay employers’ national insurance of 13.8% on partners, could pay an additional £13,800 in tax for each junior partner with an income of £100,000.

Cash flows may also be squeezed as the employed have to pay tax monthly rather than twice yearly for the self employed.

For those who are looking for a more personal approach on a range of issues, including partnership tax planning contact us at ABDS.

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net

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