The Law Society of England and Wales has reacted strongly to government proposals to review the legitimacy of limited liability partnerships (LLPs) used by thousands of UK businesses.
In its response to the government’s consultation, the Law Society’s Tax Law Committee highlighted the potentially far-reaching implications for both the business and legal community, and recommended HM Revenue & Customs (HMRC) avoid introducing another complex provision into the UK’s already lengthy tax code.
Chair of the Tax Law Committee, Gary Richards said HMRC needs to refine its partnerships policy and legislate cohesively or else risk creating uncertainty which will impact the UK’s reputation as an attractive business location.
“This is a consultation where the underlying policy is difficult to discern. Certainly, the scope is unclear. There is a real risk that measures to address perceived avoidance may render the UK an unattractive place for investment.”
The Law Society has recommended that HMRC looks closely at whether the proposals will cut across other remuneration initiatives and tax treatment consultations currently underway.
“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,” Mr Richards said.
Under the proposals, HMRC expect to raise additional National Insurance Contributions (NICs). In order to achieve this the government is challenging the presumption that all individual LLP members are self-employed.
“The Government is clearly looking to understand the economic rationale of firms establishing LLPs. We expect that most, if not all, firms will be able to demonstrate that their partnership arrangements are not aimed at avoiding NICs but reflect the contribution that their members make to firms,” Mr Richards said.
The Law Society is questioning whether now is the time to be imposing additional tax burdens on businesses generally, particularly in cases where management time and costs of external advisers are needlessly incurred to respond to HMRC challenges aimed at raising the additional NICs.
“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.”
Following the consultation’s close this week, the Tax Law Committee will closely monitor developments and scrutinise further recommendations flowing from the consultation.
Mr Richards said ensuring LLPs of all sizes are alive to the implications of HMRC’s proposals, both for clients and for firms themselves, will be a focus of the Society’s engagement with its membership.
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