Limited liability partnerships face major change as a result of a Government tax avoidance crackdown.
Rob Gunn, tax partner at the Midlands office of national audit, tax and advisory firm Crowe Clark Whitehill, cautions it could affect the finances of many.
“Legislation is on the way and it is time to get prepared now,” he noted. “It will prove a headache for some.”
From April 6, “salaried members” will be considered employees for tax purposes.
It will mean extra cost as a result of employer National Insurance Contributions of 13.8 per cent and is likely to impact on cash flow because of the new requirement to pay PAYE/NIC on a monthly basis.
The changes, in the wake of a consultation on how best to overhaul the system, are part of a wider clampdown on so-called “disguised remuneration”.
Currently firms constituted as LLPs often confer the status of salaried member on individuals to reflect their expertise or experience and remunerate them on a basis akin to a self-employed partner. They hold no decision-making power, income or capital risk.
Under the proposals, this will no longer be possible. The changes are widely drawn and could even impact on those who currently see themselves as equity partners.
The shake-up also aims to tackle artificial allocation of profits among partners for tax purposes.
Mr Gunn said: “Limited liability partnerships, including many law firms, are already under considerable pressure from increased competition and rising costs.
“While these moves are not unexpected, they will inject uncertainty, could well strain finances further and will certainly require a review of how best to structure remuneration.
“They should seek urgent advice to determine how best to proceed.”
Crowe Clark Whitehill is running a free breakfast update on Wednesday, January 22, at its Midlands office.