In the 2013 budget, the Chancellor announced that the government would consult on changes to two aspects of the tax rules on partnerships in order to prevent tax loss arising from:

  • disguising employment relationships through limited liability partnerships (LLPs); and
  • certain arrangements involving allocation of profits and losses among partnership members.

The changes will take effect from 6 April 2014. The government has invited comments on the detailed design of the changes by 9 August 2013. In particular, it is proposed to:

  • remove the presumption of self-employment for some members of LLPs that seek to disguise employment relationships
  • counter the manipulation of profit or loss allocations by some partnerships (not just LLPs) to achieve a tax advantage

Whilst it is recognised that LLPs are an important and legitimate commercial structure, the government is of the view that some LLPs are able to avoid their employment tax obligations ie by treating as partners individuals who should properly be treated as employees. In launching the review, the stated aim is to ‘level the playing field’ and not to have an impact on those partnerships or LLPs using structures as originally intended by Parliament.