Partnership taxation: proposals to clarify treatment
Following a period of consultation, HMRC has published a summary of responses and recommendations for changes to partnership tax. The stated purpose of the consultation, when it was launched in August 2016, was to provide clarity to partnerships on the way their profits are assessed and to assure HMRC that tax is correctly paid. The government expects that the vast majority of partnerships will not be affected by the proposed changes.
There have been some amendments to the proposals announced at the original consultation stage.
We set out the final recommendations below:
- Beneficiaries of nominees or bare trusts will be required to be shown as partners on the partnership tax return. This is in order to provide clarity on who actually is the partner and on whom the profits should be taxed.
- In a change to its original proposal, the government will not require a profit making partnership to report the ultimate recipients of partnership profits through a partnership chain on its return.
- If a partnership contains a partner who is UK-resident individual, non-UK resident individual, UK-resident company or non-UK resident company, that partnership will be required to compute its profits on the relevant bases for each partner as appropriate.
- Partnerships recognised as financial institutions under the OECD Common Reporting Standard (CRS) and who have reported details of their partners as required by the CRS will not be required to report those details again on their partnership tax return if they only receive investment profits.
- The idea of a payment on account for trading partnerships where the partners are not properly identified has been rejected. Instead HMRC will use the current penalty regime for incomplete tax returns where insufficient information has been provided.
- The government has dropped its proposal for partnerships to report changes to their profit sharing arrangements. HMRC will accept the taxable profit split as shown on the tax return. This is a welcome change and protects the commercial flexibility offered by partnerships.
- Retrospective changes to profit sharing arrangements after the period-end will not be valid.
- Partners should be taxed on the profits or losses arising in the periods where they are members of the partnership, and such profits or losses should be time-apportioned if they join or leave during the year, using the profit allocation in force during that period.
Legislation will be published later in 2017 with the new rules taking effect from April 2018.
If you would like further information please get in touch with your normal haysmacintyre contact or Mark Pattenden.