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Time for ‘mixed member’ partnerships to take stock

December 23, 2013

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Type: Advice for Businesses, Latest Blogs, Professional Practices News

 

Complex new rules come in from 6 April 2014 which will impact on any partnership which has a member that is not an individual.

 

The most likely partnerships to be affected are those which have a company or an LLP as a member, but it could also affect partnerships which have trustees as members.

 

We have set out a basic summary of the new rules.

 

It what situation will they apply?

 

The rules are intended to apply to a partnership which allocates profits to a non-individual partner and EITHER:

 

– The allocation of profits to a non-member ‘B’ allows an individual partner ‘A’ to defer the point at which they are taxed personally on the profits.

 

– AND it is reasonable to suppose that A’s share of profits is smaller than it would otherwise have been as a result of the arrangements.

 

– AND A’s profit share and the tax paid on the partnership profits are reduced

 

OR:

 

– B’s profit share is higher than the commercial share B should expect by reference to capital invested by B and services provided by B

 

– AND A has ability to enjoy part of all of B’s profit share

 

– AND it is reasonable to suppose that B’s profit share is attributable to A’s ability to enjoy part of all of B’s profit share

 

– AND A’s profit share and the tax paid on the partnership profits are reduced

 

What happens if the rules apply?

 

The individual partners are taxed on increased profit shares which set aside the original profit allocation to B. This is to be done on a just and reasonable basis. B is taxed on a smaller profit share.

 

What action should be taken?

 

We recommend that you ask your professional advisers to carry out a review of your partnership structure and profit sharing arrangements to determine how the new rules will affect you. We can then advise you on the options going forward.

 

Rachel Marsdin is a tax partner at Chiks. Please call Rachel on 01524 62801 for more information on the new rules on ‘mixed member’ partnerships. 

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