The government has confirmed that HMRC will continue its crackdown on partnership structures that mis-use employment relationships to pay less tax.
In spite of criticism from the asset management and wealth management sectors - where boutiques have tended to adopt the limited liability partnership (LLP) structure - the Treasury confirmed that from April 2014 it will introduce legislation to make sure partnerships are not disguising employment relationships within this type of structure.
The legislation will also aim to prevent the tax-motivated allocation of business profits to corporate partners, which are generally taxed at lower rates than individuals.
The New City Initiative (NCI), a think tank representing fund and wealth management boutiques, has warned that these proposals could spark a trend of LLPs moving to incorporate and found that half of its members are considering incorporating as a result.
The proposed tax changes will mean some partners:
- are identified as employees for tax purposes unless they can demonstrate they have significant decision-making powers within the firm;
- are subject personally to the equity and capital risk of the firm; and
- have their own remuneration tied to the profitability of the business.