The use of service partnerships has become increasingly common, particularly where the variable pay component is high. Such arrangements typically give rise to NICs advantages, also they side-step certain difficulties that might otherwise be encountered in the context of income tax as it applies to employees.
The press release refers to the “disguising of employment relationships”. Hopefully, this means that where there is a genuine choice of relationship and self-employment has been chosen then that will be respected for tax. Depending upon the scope of the deeming the rule may have wider application; for example, the treatment of junior/fixed share partners in professional partnerships.
The differential between corporation tax and income tax (plus NICs) has increasingly led to the introduction of corporate partners, particularly where money representing the corporate profit allocation is to be retained within the business for working capital purposes. At the moment such arrangements need to navigate a series of targeted anti-avoidance provisions, as well as operate within parameters defined by HMRC statement of practice. This looks set to become more difficult. Hopefully, it will be accepted that a corporate member which is paid an appropriate profit share for its contribution to a partnership/LLP will not be subject to counteraction.