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Responses to consultation on clarifying the tax treatment of partnerships

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HMRC consulted between August and November 2016 on a number of proposed changes to provide clarity on areas where it considers the current tax rules on partnerships are unclear. Based on the responses received HMRC will:

  • legislate to ensure that the beneficiary of a nominee or bare trust arrangement is treated as a partner and expect that person to be named on the partnership return, as they are potentially liable to tax on their allocation of the profits of the partnership;
  • not require a profit generating partnership to report the ultimate recipients of its profit through a partnership chain on its return, but will require the partnership to report the details of its partners with computations of taxable profit on all four possible bases (UK-resident individual, non-UK resident individual, UK-resident company, non-UK resident company);
  • not require partnerships which are reporting financial institutions and have provided details of partners under the OECD common reporting standard to report the same details on the partnership return if they only receive investment profits;
  • not pursue the option of requiring a payment on account in situations where there is a failure to comply with reporting requirements;
  • take the profit allocation stated in the partnership return as the first point of reference in determining the taxable profits of each partner, without requiring partnerships to notify changes in their profit-sharing arrangements;
  • treat partners as taxable on their share in profits or losses that arose during the period in which they were partners or members without taking account of any retrospective variation to a partnership’s profit-sharing arrangements made after the period end; and
  • calculate profits of firms which have a company partner chargeable to income tax as if a non-UK resident company was carrying on the business.

The government intends to include legislation in the second Finance Bill 2017, with changes applying to returns for accounting periods starting on or after 5 April 2018.