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Partnership tax changes on the horizon

The method of taxation for partnership practices could soon be changed dramatically after a meeting to discuss the ways in which system abuse could be prevented came to an end.

Partnership companies should ensure that their accountants in Bebington and across the UK are reporting accurately, while the arrangements are assessed by the government.

The rules currently in place allow junior staff members to be categorised as partners for the purpose of tax, even though there will have been no changes made to the job and they have no capital risk, equity, or power when it comes to making decisions.

The review further plans to address the way loss and profit are often manipulated for the sake of tax advantages. This tends to involve profits being attached to certain partners, while losses are allocated to others, meaning the partner can receive reduced tax liability through capital gains or income tax reliefs.

David Webster from legal firm Russell-Cooke said that it is no surprise that the discussed changes are being proposed by the government. He explained:

“The changes will create considerable uncertainty as to the status of many LLP members, particularly in professional practices who often confer the status of partner or member on individuals to reflect their expertise or experience whilst continuing to remunerate them on a basis akin to an employee.”

He went on to say that another area which needs to be addressed is artificial profit allocation among company partners, as there are a number of aggressive schemes which involve companies taking advantage of the rules in place.

Posted by Louise
August 15, 2013
Tax

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