High-earning senior lawyers, such as partners in the London practices of US firms, will be among those hit by new measures to combat tax avoidance, professional advisers have warned.
Following an announcement in the chancellor’s autumn statement, a draft finance bill published this week sets out proposals for identifying members of LLPs who will be regarded as ‘salaried members’ from 6 April 2014, to be treated as employees for tax purposes.
Louis Baker, partner at national accountancy firm Crowe Clark Whitehill, described the proposals as ‘dramatic’. They will potentially catch many members of larger firms, particularly where the firm has complex profit-sharing arrangements, he said.
‘Those members with high and relatively fixed remuneration packages, no real involvement in management, and little or no capital invested in the LLP need to take note,’ he warned. These would include partners in the London offices of many US firms that are structured as LLPs in the UK.
‘We may see calls to the banks from firms looking to restructure their borrowings so that each individual member can prove they have sufficient personal capital in the LLP.’
George Bull, chair of professional practices group, Baker Tilly Tax and Accounting Limited, condemned the timing of the proposed reforms. ‘By introducing the changes on 6 April 2014, rather than allowing firms to implement the changes in the first accounting period following 6 April 2014, these changes will result in unnecessary complexities for firms. These could have been avoided.
‘In addition, HMRC have ignored profession-wide requests not to apply such a “broad brush” approach which has, as predicted, caught so many genuine partnership businesses using the structures to accumulate profits for internal investment. This now gives the partnership model a very real disadvantage in comparison to the traditional corporate model.'
The draft legislation is open for technical consultation until 4 February.