Treasury decries Lords report and rejects delay for partnership tax reform

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17 March 2014


Bull: hasty approach

The Treasury has said last week’s House of Lords committee report calling for partnership tax changes to be delayed was already out-of-date, and confirmed they would come into force next month as planned.

The House of Lords economic affairs committee’s Finance Bill sub-committee (FBSC) last week urged a postponement of the changes in the Finance Bill 2014 that aim to prevent LLP members from being “disguised” employees, until 2015. Revised rules are due to commence on 6 April.

The Treasury claimed the FBSC report had been superseded by announcements made since it had taken evidence – which was almost entirely negative towards the tax changes: “The Lords report does not take into account the revised guidance and legislation that was published on 21 February and 7 March, which addressed many of the concerns raised in the Lord’s evidence sessions.”

On the question of delay, the Treasury was uncompromising, saying it would be “unfair for the vast majority of LLPs which are now preparing to implement these changes from April this year”.

A spokesman added: “The government is committed to creating a fairer tax system and to tackling tax avoidance. That is why we are taking decisive action to prevent tax losses arising from inconsistencies in the tax treatment of different types of partnerships. These changes will take effect from 6 April 2014 and there are no plans to defer implementation.”

The Treasury also claimed the HMRC’s revised guidance on the new tax rules had been “well received by industry.” It cited as an example comments made by George Bull, chair of the professional practices group of accountants Baker Tilly, who said on the firm’s website that he welcomed HMRC’s “efforts to produce a workable set of rules”.

However, Mr Bull went on to write that the guidance notes amount to “a modest step in the right direction” and that taxing salaried members as employees would have “a dramatic impact on those individuals and their firms”.

Speaking to Legal Futures, Mr Bull said: “The current HMRC approach is a blunt instrument. Its reach is broader than the tax avoidance it seeks to prevent. As a result, many innocent commercial arrangements will have to be changed.

“The House of Lords committee made clear recommendations that implementation should be delayed and that a fuller consultation should be carried out. We regret that HMRC has decided to disregard these recommendations and to press ahead with implementation on 6 April 2014, notwithstanding that this hasty approach will produce further inconsistencies for firms – for example by excluding the many overseas LLPs which practise in the UK.

“We believe this haste reflects statements made by HMRC when the summer 2013 consultation began – namely that the Treasury had already decided how the additional taxes would be spent before the form of the legislation had been determined.”

An HMRC spokesman said: “The new rules which will come into effect from April will deliver a fair outcome for taxpayers by ensuring those who are in reality employees are treated as such for tax purposes, protecting over £3bn in tax.”

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