The government has ruled out any plans to defer the imminent changes to the LLP tax rules, despite calls by the House of Lords to delay implementation until 2015
A Treasury spokesperson told Accountancy: ‘The government is committed to creating a fairer tax system and to tackling tax avoidance. That is why we are taking decisive action to prevent tax losses arising from inconsistencies in the tax treatment of different types of partnerships. These changes will take effect from 6 April 2014 and there are no plans to defer implementation.’
The Treasury said that ‘deferring implementation would be unfair for the vast majority of LLPs which are now preparing to implement these changes from April this year’.
The Lords report on the Draft Finance Bill 2014, produced by the Economic Affairs Committee’s Finance Bill Sub-Committee (FBSC) and published on 11 March, said that ‘while it is satisfied in principle with proposed measures to counter shifting of profit to corporate members of partnerships to minimise tax liability and highlights the extent of this practice in the Alternative Investment Fund Management (AIFM) sector, it expects to see the legislation drafted more precisely’.
Lord MacGregor, chairman of the House of Lords Economic Affairs Committee, said the Lords were ‘very conscious of the potential yield of £3.26bn for these measures overall’ but they dispute the potential yield from the Alternative Investment Fund Managers (AIFM) sector.
The Treasury countered that the Lords report does not take into account the revised guidance and legislation that was published on 21 February and 7 March, which addressed many of the concerns raised in the Lord’s evidence sessions.
However, the short time frame for the implementation and constantly changing rules have caused financing issues for LLPs, many of whom are having to consider cash injections or restructuring options.
‘People were upset because HMRC moved the goalposts just four months before the rules were due to be implemented,’ said Gary Richards, chairman of the Law Society’s tax law committee and partner at law firm Berwin Leighton Paisner.
An HMRC spokesperson said: ‘The new rules, which will come into effect from April, will deliver a fair outcome for taxpayers by ensuring those who are in reality employees are treated as such for tax purposes protecting over £3bn in tax.’
The new rules come into effect on 6 April 2014.