HMRC has modified its consultation proposals on disguised employment, dropping the employment status test to focus instead on the economic tests around remuneration, capital contribution and control to determine whether a member is an employee. On mixed partnerships, the revised legislation replaces the proposed ‘main purpose’ test for profit allocation rules with an objective test; introduces a relieving rule to prevent double taxation; and provides for alternative investment fund manager partnerships to pay tax on profits of individual members deferred under EU law.
The legislation will be introduced in the Finance Bill 2014 (and, in the case of the new NIC rules on disguised employment and the AIFMD mechanism, the NIC Bill 2013 and regulations) to take effect from the 2014/15 tax year, with the exception of the anti-avoidance rules introduced as part of the mixed membership partnership legislation, which comes into force on 5 December. In line with other draft provisions for inclusion in Finance Bill 2014, the government will consult on the terms of the draft legislation (but not the underlying policy) until 4 February 2014.
The new rules announced for partnerships are tougher than many expected. Commenting on the impact the rules will have for asset management firms, Robert Mellor, PwC hedge fund leader said: ‘It’s unclear why HMRC has decided to treat an asset manager structured as a corporate more beneficially than one structured as an LLP when it comes to wanting to use retained profits to fund growth, jobs and regulatory capital. A company generating profits will pay tax at 23% and can reinvest in its business. A corporate partner in a mixed partnership with allocated profits may now find those profits facing an additional level of tax, even where there is a complete absence of any tax avoidance motive. What is clear is that the proposed rules have gone further than the proposals outlined in the consultation exercise. The proposals go beyond addressing tax avoidance, otherwise the proposed tax avoidance motive test would remain. Instead, this seems to be more of a tax raising exercise.’
HMRC has modified its consultation proposals on disguised employment, dropping the employment status test to focus instead on the economic tests around remuneration, capital contribution and control to determine whether a member is an employee. On mixed partnerships, the revised legislation replaces the proposed ‘main purpose’ test for profit allocation rules with an objective test; introduces a relieving rule to prevent double taxation; and provides for alternative investment fund manager partnerships to pay tax on profits of individual members deferred under EU law.
The legislation will be introduced in the Finance Bill 2014 (and, in the case of the new NIC rules on disguised employment and the AIFMD mechanism, the NIC Bill 2013 and regulations) to take effect from the 2014/15 tax year, with the exception of the anti-avoidance rules introduced as part of the mixed membership partnership legislation, which comes into force on 5 December. In line with other draft provisions for inclusion in Finance Bill 2014, the government will consult on the terms of the draft legislation (but not the underlying policy) until 4 February 2014.
The new rules announced for partnerships are tougher than many expected. Commenting on the impact the rules will have for asset management firms, Robert Mellor, PwC hedge fund leader said: ‘It’s unclear why HMRC has decided to treat an asset manager structured as a corporate more beneficially than one structured as an LLP when it comes to wanting to use retained profits to fund growth, jobs and regulatory capital. A company generating profits will pay tax at 23% and can reinvest in its business. A corporate partner in a mixed partnership with allocated profits may now find those profits facing an additional level of tax, even where there is a complete absence of any tax avoidance motive. What is clear is that the proposed rules have gone further than the proposals outlined in the consultation exercise. The proposals go beyond addressing tax avoidance, otherwise the proposed tax avoidance motive test would remain. Instead, this seems to be more of a tax raising exercise.’
