The House of Lords Economic Affairs Committee has recommended that changes in the taxation of limited liability partnerships should be delayed until April 2015 in order to give firms affected an opportunity to adjust.
HMRC and the Treasury are concerned that limited liability partnership structures allow “disguised employment” to take place, whereby some people that take the title of “partner” in fact have a guaranteed income and little decision-making power. The worry for the government is that the well-established arrangement gives rise to tax discrepancies.
Guidance released in February shows that, despite widespread adviser disquiet over the breadth of firms that could be caught within the regime, officials are pressing ahead with its introduction.
Under the draft proposals, partners must satisfy one of three tests in order to maintain their status:-
- the first option is ensuring at least a quarter of their pay is profit-dependent
- the second would see them contribute at least 25% of their ‘fixed pay’ to the firm’s capital; or
- the third option is to prove they have significant influence on the overall partnership.
If partners are deemed to be employees, then Employers NIC at 13.8% will be due and other employment-related tax rules, such as benefits in kind, will apply to them.