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House of Lords: Delay LLP salaried member tax changes to April 2015

Overseas LLPs in the UK 'should be included' in the proposed measures

12 March 2014

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By Manju Manglani, Editor (@ManjuManglani)

The House of Lords has called for proposed changes to the taxation of UK limited liability partnerships to be delayed to April 2015 and for overseas LLPs to be included in the new measures.

In addition, it has criticised the government's decision to include measures in the draft Finance Bill that are significantly different from the proposals it consulted on in the summer.

The Lords call for a fuller consultation to be carried out to target the legislation properly.

"[We] criticise its decision to launch significantly different proposals in the draft Finance Bill 2014 without allowing time for further consultation," the report by the House of Lords' Economic Affairs Committee, published yesterday, says.

"Most of the evidence we received argued that the proposed legislative tests went too wide and would have the effect of classifying as employees some LLP members who would be treated as partners according to case law.

"We therefore recommend delaying the salaried members' provisions until April 2015. This would also enable businesses to adapt to any changes and the government to consider whether the new rules should apply for the partnership's accounting year rather than for the tax year.

"The government should also consider the position of non-UK LLPs carrying on a business in the UK with a view to aligning their treatment with that of UK LLPs".

The Lords also raised concerns about the lack of clarity provided on the taxation of corporate members of LLPs in the proposed changes.

Said Lord MacGregor, chair of the Economic Affairs Committee: "We are concerned that the draft legislation on mixed membership partnerships is not drafted sufficiently precisely and urge HMRC to react to the points that were put to us. We are also concerned at the amount of tax lost from the practice of profit shifting, and that HMRC was apparently unaware of its scale and had allowed it to become embedded as acceptable tax planning."

Adds the report: "We recommend that HMRC amend the provisions so that they are drafted more precisely and rely less on guidance."

Commenting on the Lords' findings, George Bull, chair of the professional practices group at Baker Tilly, said: "This may all be too little and too late for many firms who have already spent hours of management time and professional costs, but we endorse the FBSC findings and urge HMRC to listen and respond quickly.

"However, on the back of the publication of the revised draft 2014 Finance Bill last Friday, which gave a three month grace period for funding requirements, we are concerned that HMRC has now reached a point of no return."

Adds Louis Baker, head of professional practices at Crowe Clark Whitehill: “With only a month to go there are still ongoing discussions with HMRC over aspects of the detail. It is shocking really and demonstrates this is all being done in too much of a rush.

“Hopefully the government will now listen to the voice of reason from their lordships.”

The changes, which are due to come into effect on 6 April 2014 under the Finance Bill 2014, have been highly controversial.

Objections have been made by the City of London Law Society, the Law Society of England and Wales, accountancy firms and a wide range of partnerships, with many calling for a delay to April 2015.

However, HMRC recently emphasised that the new rules for salaried members will continue to be effective from 6 April 2014.






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