The Government has launched a consultation, 'Partnership taxation: proposals to clarify tax treatment'. It's object is to remove uncertainty by making the calculation and reporting of partnership profits clearer for taxpayers.
The consultation is relevant to general and limited partnerships, Limited Liability Partnerships (LLPs) and foreign entities classified as partnerships for UK tax.
The proposals cover a number of areas:
1. Clarification of who is the partner chargeable to tax.
- It is proposed that, for tax purposes, a person will be treated as a partner if they are notified to HMRC as such in the partnership return.
- This is intended to remove any confusion where HMRC and Companies House records do not agree.
2. Business structures that include partnerships as partners
- The proposal is to ‘look through’ partners who are themselves partnerships or LLPs to the individual or corporate ‘ultimate partner’.
- Details of ultimate partners and their profit / loss share would have to be reported on the partnership return.
3. Investment income: tax administration
- Comments are invited as to how the tax administration of partnerships with only investment income could be simplified.
4. Trading and property income: tax administration
- Options will be explored for protecting tax revenue where details of partners entitled to trading or property profits are not provided by a partnership.
- This could include a payment on account being required on behalf of any unidentified partners.
5. Allocation and calculation of partnership profit
- Profit sharing agreements
- Legislation is proposed to confirm that the arrangements set out in the partnership / LLP agreement are the determining factor.
- To maintain flexibility this could be overridden by notification to HMRC.
- Allocation of tax adjusted profit
- Legislation is proposed to confirm that the basis of allocating tax adjusted profit should be the same as that of allocating accounting profits.
- Companies chargeable to income tax:
- Legislation is proposed to clarify that the profits of corporate partners subject to income tax will be calculated as if a non-UK resident company were carrying on the business.
- Non-chargeable persons
- If the nominated partner does not provide details of ultimate partners their share of profit or loss will be calculated as if they were a UK resident individual.
Comment
Although the document stresses that the proposed changes should have no effect on the vast majority of partnerships. It also says that it should be read by "Those with an interest in how partnerships and limited liability partnerships are taxed under the income tax and corporation tax rules, including advisors and representative bodies."
The consultation runs until 1 November 2016. This will be followed by a further round of consultation covering the detailed proposals for reform.
Links
Consultation document: Partnership taxation: proposals to clarify tax treatment
