Guest Briefing Note – Cummings Law on Taxation of Partnerships and LLPs

CarolineLeaver

We are delighted that Cummings Law has contributed to our Briefing Notes this month.  Cummings is a boutique law firm specialising in funds and fund management, offering a dedicated, bespoke legal service. The firm also provides legal advice on financings, both secured and unsecured and offers specialised legal advice for start-ups, existing funds and fund managers.

Cummings’ have prepared a briefing note on taxation of Partnerships and LLPs – Guest Briefing from Cummings Law on HMRC taxation of Partnerships and LLPs.  New Legislation is being introduced in the draft Finance Bill 2014 affecting the taxation of partnerships and LLPs, including changing the treatment of a salaried member from a member to an employee where the following conditions are met:

  1. the member will perform services for a ‘disguised salary’ i.e. fixed or variable salary if, in the case of variable, the variation is without reference to or in practice unaffected by the profit or loss of the LLP,
  2. the member has no significant influence on the affairs of the LLP, and
  3. the member’s contribution to the the LLP is less than 25% of the ‘disguised salary’ which it is reasonable to expect that the LLP will pay to the member in the relevant tax year.

This will have an impact on professional firms and property companies where it is not unusual for the salaried partners to be treated for tax purposes as self-employed yet receive a fixed salary but in every other way treated as an employee.  Under these new rules the LLP will be required to pay Employers NI and the employee will be taxed at the appropriate rate.  However, the cost of employing the salaried member will be deductible from the LLP’s profits.