The Office of Tax Simplification published a Review of partnerships: interim report. Some 10% of UK business is now run in partnership however the tax rules for partnerships have evolved as "add-ons" not distinguishing between large partnerships and small partnerships. The report also highlights how Limited Liability Partnerships (LLPs) are often viewed by officials as exclusively avoidance vehicles, suggesting that a more balanced view would be helpful.

 It recommends some short term fixes in order to help many of the 96% of partnerships, which have four partners or fewer: 

  • BIS to re-publish its model partnership agreement
  • Publishing a manual of consolidated guidance for partnerships
  • Allow interest on income to be entered gross on the short return
  • Changing the corporation tax self assessment return to include a section for income from a partnership
  • HMRC to clarify when partnerships are eligible for Entrepreneurs’ Relief (particularly regarding possible relief on subsidiary companies held by an LLP)
  • The process for issuing unique taxpayer references to foreign partners needs to be streamlined
  • It would be useful to have a form of general remittance basis investment relief for groups of non-domiciled individuals investing in UK investment partnerships
  • HMRC to create free software for the smallest partnerships
  • HMRC guidance should be clearer on stamp duty land tax (SDLT) liabilities following changes in profit sharing ratio
  • There needs to be a review and update of the guidance on inheritance tax for partnerships
  • HMRC to clarify their requirements as regards limited partnerships and joint ventures for the purposes of VAT registration, where the present published guidance seems unclear
  • HMRC to give clear guidance on VAT grouping for LLPs.

The OTS also suggest that other measures should be reviewed, for example in allowing the Annual Investment Allowance for expenditure by partnerships with a corporate member, investigating whether very small partnerships really need to make a partnership return and whether the penalty regime for small partnerships, which file late, is too onerous, whether all partners really need to sign a Form VAT 2, the ‘need to notify’ penalty when a sole trader becomes a partnership.

CGT and partnerships and the future of Statement of Practice D12 are also considered.

External links

Review of partnerships: interim report