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NCI: The Budget was a missed opportunity to reform partnership tax
by Elsa Buchanan on Mar 20, 2014 at 08:06
The New City Initiative has again called for a rethink ahead of the introduction of the proposed partnership tax, branding the Budget a missed opportunity to amend the proposals.
The crackdown was first highlighted during the Autumn Statement, in which the government announced it would press ahead with a review of the taxation of partnership structures where corporate entities are set up to act as additional partners, and are generally taxed at lower rates than individuals.
The NCI's call follows the 'strongly-worded recommendation' by the House of Lords Select Committee on Economic Affairs, in its report on the Draft Finance Bill, that the implementation should be delayed a year.
The NCI described the government's decision to go ahead with the tax as 'regrettable', claiming the 'broad-brush nature of this legislative change, sweeping up both tax avoiders and legitimate firms, could well score its own goal'.
'As well as potentially leading to a lower tax take, it may undermine the UK's attractiveness as a domicile for the establishment of an LLP, and may well discourage new LLP start-ups,' the think tank said.
'The result is that many partnerships may now opt to incorporate, which the clearly signalled consequence that the government may lose more than it stands to gain in terms of tax revenues,' stated the NCI, which is chaired by Magnus Spence (pictured).
'By incorporating, investment management firms which are currently structured as limited liability partnerships, could retain profits which would otherwise be subject to income tax and save approximately 14% of their current tax liability.'There are 53,583 LLPs in the UK, of which 759 are in the financial services industry.
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