A Nottingham accountant is warning members of Limited Liability Partnerships (LLP) in professional services firms, to review their employment status ahead of a 6th April 2014 deadline.
Jill Evenden, MD of EBS Accountants on Nottingham’s Barker Gate, says the changes published by HMRC in the draft Finance Bill 2014, mean that from the 6th April, partners or members of an LLP will be subject to new tests that will determine if they are in fact salaried members.
“The draft Finance Bill 2014 recently published by HMRC includes changes to the taxation of certain partnerships,” explains Jill, “and as part of this, a new type of partnership member for Limited Liability Partnerships, known as ‘salaried member’, will commence on the 6th April 2014.
“The new status has been introduced to counter so-called ‘disguised employment’ arrangements, where, according to HMRC, staff are elevated to the status of partners of LLP’s in order to benefit from self-employed tax status. The LLP employer also saves Class 1 NIC contributions.
“One thing is clear, all LLP partnerships should undertake a review of their members’ tax status as soon as possible before the 6th April,” adds Jill.
HMRC has argued that the underlying relationship between the LLP and partners who fall into the ‘disguised employment’ category has not changed and that they remain, in essence, employees rather than partners.
Last week, The Law Society added its concerns to the potential changes to LLP taxation, stating that “any partnerships wishing to keep so-called salaried partners and abide by new rules would see their reserves ‘decimated’”.
“HMRC is concerned that LLP structures allow the ‘disguised employment’ to take place, and individuals who are seemingly partners, in fact have a guaranteed income and little decision making power,” adds Jill, “and under this arrangement, can take advantage of tax avoidance opportunities.”
From April, all LLP members and/or partners will have to pass one of three new tests to establish their status and determine if they are salaried members.
Jill comments: “Members who are subsequently reclassified will be treated as employees of the LLP and subject to PAYE in the normal way for Income Tax purposes. Salaried members will also be subject to the employee-related benefit in kind rules.
“From a planning perspective, it is still unclear how these new definitions will work in practice, but new guidance promised by HMRC may help. However, LLP’s with salaried members will be liable to employers’ NIC contributions, and the combined cost of the salaried member’s salary and employers’ NIC will be an allowable deduction in the LLP’s tax computation.”
