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HMRC: New LLP tax rules still effective from 6 April 2014

Revised technical note and guidance provide greater clarity for international firms

24 February 2014

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By Manju Manglani, Editor (@ManjuManglani)

The new rules for salaried members of UK limited liability partnerships will continue to be effective from 6 April 2014, HM Revenue & Customs has said.

HMRC has however made several important changes to its revised technical note and guidance (published late Friday afternoon) in response to requests.

Amendments have been made to each of the conditions for determining salaried member status, providing greater clarity for eat-what-you-kill and international firms.

In publishing the note, HMRC said "members who are 'true' partners carrying on the business are unaffected by the new rules".

"Addressing inconsistencies ensures that limited liability partnership members who are, in effect, providing services on terms similar to employment are treated as 'employees' for tax purposes," it said.

"The revised guidance notes represent a modest step in the right direction," said George Bull, chair of the professional practices group at Baker Tilly.

Bull points to the following "small but significant changes" that have been made to the technical note and guidance document.

Under 'Condition A' on disguised salary, HMRC has now provided a statutory definition of "wholly and substantially", providing greater certainty for firms and members.

"The new rules will apply where it is reasonable to expect that at least 80 per cent of the amounts payable by the LLP for the member services will be disguised salary," said Bull.

Other clarifications include "sensible confirmation that drawings on account of an eventual profit share will not of themselves be treated as a fixed profit share as they will be later tallied up with the actual profits."

Under 'Condition C' on capital contributions, firms will now have more time to put partner contributions in place.

Commented Bull: "With banks and professional firms alike maintaining that it would be impossible to reorganise every firm's finances such that all members had the requisite amount of capital in place by 6 April 2014, HMRC is offering a relaxation: in determining whether Condition C is met, a firm commitment in place by 6 April 2014 to contribute capital within three months will be taken into account."

Greater clarification is provided in the note as to HMRC's expectations if members' income is subject to pay-as-you-earn tax and national insurance contributions. The notes now cover pay, benefits in kind, statutory payments, statutory maternity pay, statutory sick pay, statutory adoption pay and statutory paternity pay.

"These are relevant because, if a member is taxed as an employee, the LLP will be secondary contributor for NICs," said Bull.

Associated changes to the national insurance contributions legislation are being made under the National Insurance Contributions Bill 2013.

"The notes appear to be silent on student loan repayments and pensions auto-enrolment, suggesting that it is not intended that these will apply. If not explicitly covered in the notes, further confirmation may be required as slip-ups in these areas could cause considerably difficulty for the members."


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