HMRC is consulting on a number of proposed changes to provide clarity on certain areas where it considers the current tax rules on partnerships are unclear or produce an inappropriate outcome.
The main proposals are:
· Partners chargeable to tax: A person will be treated as a partner in a partnership for tax purposes if they are notified to HMRC as partners in the partnership return.
· Business structures that include partnerships as partners: Introduce legislation to provide that those responsible for paying the tax on a share of partnership profit are treated as partners in the first partnership for the purposes of income tax, capital gains tax and corporation tax. Details of the partners, including those treated as partners under these proposals, and their share of the partnership profit or loss will be reported by the nominated partner of the first partnership on the partnership return and statement for the first partnership.
· Trading and property income: Explore options for protecting the exchequer, where the details of partners entitled to trading or property business partnership profits are not provided by the partnership. One such option could include a payment being made on account to HMRC on behalf of any partners who are not identified.
· Profit sharing arrangements: Introduce legislation to confirm that the profit sharing arrangements, as set out in the partnership or LLP agreement, are the determining factor in identifying the partners’ profit shares.
· Allocation of tax-adjusted profit to partners: Introduce legislation to provide that the basis of allocation of tax-adjusted profit should be the same as the allocation of the accounting profit or loss between the partners. This legislation would apply to both partnerships and LLPs. Partners or members would only share in profits or losses for the period in which they were partners or members.
· Companies chargeable to income tax: Introduce legislation to provide that the profits of company partners liable to income tax will be calculated as if a non-UK resident company were carrying on the business.
HMRC is consulting on a number of proposed changes to provide clarity on certain areas where it considers the current tax rules on partnerships are unclear or produce an inappropriate outcome.
The main proposals are:
· Partners chargeable to tax: A person will be treated as a partner in a partnership for tax purposes if they are notified to HMRC as partners in the partnership return.
· Business structures that include partnerships as partners: Introduce legislation to provide that those responsible for paying the tax on a share of partnership profit are treated as partners in the first partnership for the purposes of income tax, capital gains tax and corporation tax. Details of the partners, including those treated as partners under these proposals, and their share of the partnership profit or loss will be reported by the nominated partner of the first partnership on the partnership return and statement for the first partnership.
· Trading and property income: Explore options for protecting the exchequer, where the details of partners entitled to trading or property business partnership profits are not provided by the partnership. One such option could include a payment being made on account to HMRC on behalf of any partners who are not identified.
· Profit sharing arrangements: Introduce legislation to confirm that the profit sharing arrangements, as set out in the partnership or LLP agreement, are the determining factor in identifying the partners’ profit shares.
· Allocation of tax-adjusted profit to partners: Introduce legislation to provide that the basis of allocation of tax-adjusted profit should be the same as the allocation of the accounting profit or loss between the partners. This legislation would apply to both partnerships and LLPs. Partners or members would only share in profits or losses for the period in which they were partners or members.
· Companies chargeable to income tax: Introduce legislation to provide that the profits of company partners liable to income tax will be calculated as if a non-UK resident company were carrying on the business.
