Partnerships are well and truly on HMRC's radar, chancellor George Osborne revealed today in his Autumn Statement.
'We will ensure tax advantages of partnerships aren’t abused,' he told the Commons.
The Autumn Statement confirmed that the government will press ahead with its review of partnerships structures, and the extension of the review to ‘alternative investment funds’
Osborne’s review of partnerships, which is aimed at preventing large professional partnerships and wealthy individuals concentrated in private equity from abusing the rules on compensating adjustments in the transfer pricing code, was announced at Budget 2013.
The tax crackdown on partnerships is likely to affect 'mixed partnerships' in a range of industries where they are set up as a corporate entity to act as an additional partner.
This includes wealth and asset management companies that have pressured the government to water down its plans.
The structure is seen as an efficient way to pay less tax on money that needs to be reinvested in the partnership as working capital, although some suggest that these have been used as tax avoidance schemes.
The Autumn Statement noted limited liability partnerships are sometimes used ‘to disguise employment relationships and the tax-motivated allocation of business profits to corporate partners, which are generally taxed at lower rates than individuals’.
During the review consultation, the government received ‘new information’ showing that the impact on alternative investment fund managers who operate as partnerships will be greater than anticipated, the statement also said.