A proposed crackdown on tax avoidance by limited liability partnerships will increase systemic risk to the financial sector, a debate organised by City firms heard yesterday.
However a high-profile Conservative former minister warned opponents of the new measures that they will need to come up with hard evidence urgently if they are to sway ministers.
John Redwood MP (pictured) was summing up a debate organised by the New City Initiative, an alliance of asset management firms, on new measures to be introduced in April to tackle ‘disguised employment’ among members of LLPs.
The new rules will tax members of LLPs as employees unless they can demonstrate that they have a financial stake in the partnership, are rewarded according to profits and play an active part in its management.
Martin Shah, tax partner at City firm Simmons & Simmons, said the measures were already having an impact on law firms. ‘We are very concerned with the proposals,’ he said.
'If they are promulgated in the form set out it will lead to decisions being made for tax reasons rather than commercial reasons. We also have significant concerns about the timing.’
Dominic Johnson, deputy chair of the New City Initiative, said that the changes might discourage investment in the City, and encourage businesses to choose limited company rather than partnership status, which he said would increase systemic risk.
‘If you meddle with the structure of LLPs you increase risk.’
However Redwood said that ‘the view from SW1’ is that tax avoidance is automatically a bad thing. ‘You are not going to win this argument unless you help me engage in the general argument, which is that you need a concept of good and bad avoidance.’
He said the only way Westminster would become interested in the LLP issue would be if there was firm evidence that partnerships would move elsewhere. ‘You need to put evidence that this is going to be the case, quickly,’ he said.
HM Revenue & Customs is expected to publish final guidance on the new rules on 17 February.