The consultation on partnership taxation includes proposals for new legislation to deal with ‘disguised employment’ using LLPs. There is a simpler way.
The problem identified by HMRC in its consultation document A review of two aspects of the tax rules on partnerships is that the tax legislation (e.g. ITTOIA 2005 s 863) wrongly provides for all LLP members to be taxed as if they were partners – including junior members who if the LLP were a partnership would not be partners at all. The original policy aim was to tax LLP members in the same way as partners in a partnership not more favourably.
If the problem is that a legislative provision is too wide the obvious solution is to amend that provision so that it applies more narrowly. However ...
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