LLP tax reforms 'premature'

Plans by HMRC to change the way LLP members are taxed have been criticised as "premature" by the Law Society.

Accountants Baker Tilly and the City of London Law Society have already attacked the plans, which would remove the presumption of self-employment enjoyed by LLP members.

Baker Tilly said the changes, scheduled for April 2014, would increase income tax and national insurance liabilities.

The City of London Law Society said it would be more sensible to wrap the LLP tax consultation into a wider review of partnership tax being undertaken by the Office of Tax Simplification

Gary Richards, chairman of the Law Society's tax law committee, said the underlying policy of the proposals was "difficult to discern" and the scope was unclear.

"There's no denying that perceived tax avoidance continues to be a hot topic. But legislation would be premature until HMRC can refine the issues it is really seeking to address," Richards said.

"There is a real risk that measures to address perceived avoidance may render the UK an unattractive place for investment."

Richards said the HMRC should look closely at whether the proposals cut across other remuneration initiatives and tax treatment consultations currently underway.

"HMRC need to refine their policy on partnerships and legislate, probably in 2015, rather than in a piecemeal fashion which just creates uncertainty for partners, whether in legal or accounting practices or other businesses operating through LLPs."

Richards questioned whether now was the time to impose additional tax burdens on business and warned of the potential waste in management time and the cost of external advisers.

However, he expected that "most, if not all, firms" would be able to show that their partnership arrangements were not aimed at avoiding national insurance contributions but reflected the contribution that their members made to firms.