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LLP tax changes ‘pushed back’ practices by ‘a quarter of a century’

Accountancy firm calls for end to 'postcode lottery' in Finance Bill 2014 

15 April 2014

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By Manju Manglani, Editor (@ManjuManglani)

The 6 April 2014 tax changes to limited liability partnerships (LLPs) in the UK have "pushed back" partner compensation, governance and firm funding by "up to a quarter of a century," a national accountancy firm has said.

George Bull, chair of the professional practices group at Baker Tilly, has slammed the "retrograde impact of the changes on sophisticated but honest commercial arrangements".

He admitted that "modest relaxations" were made by HMRC to the rules following the 12-month consultation period.

But, he added that the Finance Bill 2014 has created undue tax burdens on professional services firms, which account for around eight per cent of GDP.

"Many professional firms are highly evolved businesses. This level of sophistication does not happen overnight: what we see today reflects law firm evolution which began in the 1990s and which continues now," said Bull.

He noted that, to protect themselves from the cashflow burden of new PAYE liabilities, many firms have had to make sudden and substantive changes to their partner compensation arrangements (Condition A), governance (Condition B) or firm funding (Condition C).

"So whichever way you look at it, these tax changes will have pushed back by anything up to a quarter of a century the internal workings of at least one aspect of many firms."

Bull also raised concerns about a lack of national consistency in terms of application of the legislation, creating additional hardship for small and medium-sized firms.

"Larger firms have access to guidance from their client relationship managers in HMRC. It's reasonable to expect that CRMs across the country will be adopting a broadly consistent approach," he said.

"For small and medium-sized firms, consistency of application of the new legislation may be no more than a pipe dream: the reality could well be closer to a postcode lottery depending on the attitudes of the tax inspector looking at a particular firm."

At an individual level, Bull noted that LLP members have been given no certainty as to whether they will be taxed as an employee or self-employee and cannot expect a ruling from HMRC until the Finance Bill receives royal assent at the beginning of July 2014.

"If firms do not get it right, they face interest and penalties in respect of the non-operation of PAYE," he said.

"We call on HMRC to adopt a common-sense, nationally consistent light-touch approach to implementation to avoid manifest injustices as we all come to grips with what the new rules mean in practice."





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