Partnerships and LLPs are well established structures for investment funds and business services, popular due to their flexibility and tax transparency. However, the Government is concerned that this flexibility has been abused for tax avoidance purposes and has announced that it will consult on measures to:
- remove the presumption of self-employment for LLP partners to prevent persons who would otherwise be employees being “disguised” as LLP members and therefore taxed on a self-employed basis with a considerable saving of national insurance contributions; and
- counter the manipulation of profit and loss allocations by partnerships including a company, trust or similar vehicle in order to secure tax advantages, a concern which has presumably increased with the reduction of corporation tax rates and the introduction of the 50%/45% additional rate of income tax.
A consultation document will be published in “the spring”. No further details yet. It seems unlikely that the proposed measures will adversely affect many of the BVCA-standard limited partnerships used for private equity funds, nor the LLPs used by some professional services firms and investment managers, but we shall await the detailed proposals in the forthcoming consultative document with interest.