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OTS to advocate better guidance on partnerships taxation

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The House of Lords economic affairs committee’s Finance Bill sub-committee heard evidence on 21 January from John Whiting, director of the Office of Tax Simplification. The committee’s consideration of the draft Finance Bill is focusing on the taxation of partnerships and the government’s new approach to tax policy making.

Whiting told peers that a forthcoming OTS report will call for better guidance on the taxation of partnerships and improvements to the penalty regime. He noted that the same rules apply to partners in both small family firms and, for example, the large accountancy firms. But many small firms did not have advisers and struggled with the system. Asked about the scope for tax avoidance, Whiting revealed that more than 10,000 LLPs had been formed in the last year. ‘There must be some avoidance within that,’ he said. But he stressed that the owner of a new business should be free to take account of the tax treatment of future profits and gains in deciding how to structure the business, and that there were perfectly valid reasons for having a corporate partner.

On 27 January, the committee will hear evidence from tax barrister Malcolm Gammie QC; Judith Freedman, professor of taxation law at the University of Oxford; Richard Murphy, director of Tax Research UK; and Richard Brooks, Private Eye journalist and former tax inspector. The committee aims to publish its report prior to the Budget on 19 March.