In August 2016, HMRC published a consultation outlining proposals to clarify certain tax aspects of partnerships.
The main proposals were:
- A person would be treated as a partner in a partnership for tax purposes if they are notified to HMRC as partners in the partnership return.
- HMRC acknowledged that it is possible within business structures to have multiple tiers of partnership structures so it is not always clear who is responsible for paying the tax of the underlying partnership. One proposal is to introduce legislation to look through to the ultimate partner and treat its partners as partners in the underlying partnership. Details of all of the partners (including the ultimate partners) would have be reported on the underlying partnership return.
- Exploring ways to protect the Exchequer where details of partners entitled to trading or property business profits do not provide details of the ultimate partner, including payments on account.
- Legislate to confirm that the basis of the allocation of tax adjusted profit should be same as the accounting profit or loss between the partners.
- Introduce legislation to provide that profit of corporate partners liable to income tax will be calculated as if a non-UK resident company were carrying on the business.
Following the consultation, the Government confirmed in the Autumn Statement, that it will look to legislate these proposals. Draft legislation will be published for technical consultation.
For the majority of partnerships, these changes are unlikely to have any material impact. However, for industries such as Private Equity which use successive tiered partnerships, having to trace through to the ultimate partner may be a protracted exercise.
Unfortunately, the legislation is unlikely to take anything further forward on the more fundamental issue that a proper comprehensive tax code is needed for partnerships.