Mixed member partnerships rules: a complex knot to untangle

The mixed membership rules are targeted at partnerships in which profit allocations are utilised to minimise tax. The collateral victims of the rules appear to be well-intentioned partnerships that have unsatisfactory contemporaneous evidence to support their commercial intentions justify profit allocations and track payments. First-tier Tribunal case law in this area is dynamic with recent judgments – BlueCrest Odey and HFFX – gradually lowering the bar for some of the rules to apply in favour of HMRC. Three key appeals are due to be heard for a binding decision by the Upper Tribunal in the coming months. While taxpayers wait for these determinations practical steps that can minimise risks of being inadvertently caught by these rules include obtaining independent justifications for the amount of profits allocated to corporate partners; tracing the spending of corporate partners’ profit share; and documenting the rights between corporate and individual partners...