The CIOT has submitted a paper to HMRC outlining their concerns about HMRC’s February 2024 updated guidance on the salaried members rules, and urging HMRC to reconsider their position.
HMRC’s revised guidance suggests that the targeted anti-avoidance rule (TAAR) will apply where a capital contribution is increased pursuant to an arrangement that allows members to alter their contributions to avoid meeting Condition C. The CIOT believes that this is contrary to the policy intent behind the TAAR which is articulated as being ‘to counter abusive arrangements’ that ‘have no other substantive effect’.
‘We find it difficult to see how the making of a genuine capital contribution can be regarded as being abusive or has having no other substantive effect,’ the CIOT says.
‘We firmly believe that policymakers at the time recognised that genuine capital contributions should not be caught by the TAAR when the salaried members rules were introduced,’ the CIOT says. ‘This position is supported by the inclusion of ITTOIA 2005 s863F, under which existing LLP members were given a 3-month “transitional easement” when the rules came into force on 6 April 2014, which meant that contributions made by 5 July 2014 would be deemed to have been made on the date that an undertaking to make the contribution was given.’
The Institute pointed out that in the past HMRC had raised no concerns with capital contribution requirements being calculated with reference to Condition C. ‘In fact, it is the experience of CIOT members that HMRC have historically agreed that LLPs and their members can achieve certainty in respect of the salaried members rules by complying with the requirements of Condition C and, in some cases, HMRC have even provided assurance that Condition C is not met so long as the requisite amount of capital has genuinely been contributed.’
‘In summary, we consider that HMRC’s revised guidance and practice is technically incorrect as it is contrary to the legislation enacted by Parliament, as well as being unfair as it seeks to penalise LLPs and their members who have, in good faith, complied with the rules to the best of their knowledge, having relied on statements and guidance published by HMRC and, in some cases, direct discussions with HMRC officers. We are aware that HMRC compliance teams are attempting to assess additional liabilities going back up to six years based on the change of view. Such retroactive application feels particularly egregious,’ the CIOT said.
The CIOT has submitted a paper to HMRC outlining their concerns about HMRC’s February 2024 updated guidance on the salaried members rules, and urging HMRC to reconsider their position.
HMRC’s revised guidance suggests that the targeted anti-avoidance rule (TAAR) will apply where a capital contribution is increased pursuant to an arrangement that allows members to alter their contributions to avoid meeting Condition C. The CIOT believes that this is contrary to the policy intent behind the TAAR which is articulated as being ‘to counter abusive arrangements’ that ‘have no other substantive effect’.
‘We find it difficult to see how the making of a genuine capital contribution can be regarded as being abusive or has having no other substantive effect,’ the CIOT says.
‘We firmly believe that policymakers at the time recognised that genuine capital contributions should not be caught by the TAAR when the salaried members rules were introduced,’ the CIOT says. ‘This position is supported by the inclusion of ITTOIA 2005 s863F, under which existing LLP members were given a 3-month “transitional easement” when the rules came into force on 6 April 2014, which meant that contributions made by 5 July 2014 would be deemed to have been made on the date that an undertaking to make the contribution was given.’
The Institute pointed out that in the past HMRC had raised no concerns with capital contribution requirements being calculated with reference to Condition C. ‘In fact, it is the experience of CIOT members that HMRC have historically agreed that LLPs and their members can achieve certainty in respect of the salaried members rules by complying with the requirements of Condition C and, in some cases, HMRC have even provided assurance that Condition C is not met so long as the requisite amount of capital has genuinely been contributed.’
‘In summary, we consider that HMRC’s revised guidance and practice is technically incorrect as it is contrary to the legislation enacted by Parliament, as well as being unfair as it seeks to penalise LLPs and their members who have, in good faith, complied with the rules to the best of their knowledge, having relied on statements and guidance published by HMRC and, in some cases, direct discussions with HMRC officers. We are aware that HMRC compliance teams are attempting to assess additional liabilities going back up to six years based on the change of view. Such retroactive application feels particularly egregious,’ the CIOT said.
