Partnership taxation: proposals to clarify tax treatment
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Detail of outcome
The government wants to remove uncertainty and provide clarity for partnerships. The changes we propose will ensure the tax system fits with modern commercial practice.
The government will ensure that the beneficiary of a nominee or bare trust arrangement is treated as a partner and will expect that person to be named on the partnership return. Partnerships must report to HMRC the details of their partners, and provide to both HMRC and the partner computations of taxable profit on all 4 possible bases (UK-resident individual, non-UK resident individual, UK-resident company, non-UK resident company); where the details of all the ultimate recipients of the partnership profit have been provided to HMRC, the partnership will only have to prepare computations on the bases appropriate to those persons.
Partnerships which are reporting financial institutions as defined by the OECD Common Reporting Standard and which have provided details of partners under CRS, will not be required to report the full details of those same partners on the partnership return (if they only receive investment profits).
A partnership return must identify each partner and their respective allocation of taxable profit, as determined by reference to the firm’s profit-sharing arrangements. The profit allocation stated in the partnership return will then be the first point of reference for HMRC in determining the taxable profits of each partner. Where the allocation of profits between partners reported on the partnership return is disputed, the Government intends to legislate to protect the partners from being taxed on incorrect profit shares.
Legislation will provide that any retrospective variation to a partnership’s profit-sharing arrangements made after the period-end will not apply. Where a partner joins or leaves a partnership during an accounting period, the government will provide that such partners would be treated as taxable on their share in profits or losses that arose during the period in which they were partners or members.
Profits of firms which have a company partner chargeable to income tax will be calculated as if a non-UK resident company was carrying on the business.”
Original consultation
Consultation description
The consultation covers areas where the government has identified that the tax rules may be seen as unclear or produce an inappropriate outcome.
These areas comprise:
- clarification of who is the partner chargeable to tax
- business structures that include partnerships as partners
- investment income - tax administration
- trading and property income - tax administration
- allocation and calculation of partnership profit
The object of the proposals is to remove uncertainty by making the calculation and reporting of partnership profits clearer for taxpayers.
This will prevent unnecessary costs for compliant taxpayers and reduce the scope for non-compliant customers to avoid or delay paying tax. It will have no effect on the vast majority of partnerships. It seeks to provide clarity in particular circumstances where the current rules are seen as creating uncertainty.
Documents
Last updated 20 March 2017 + show all updates
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Summary of responses published
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First published.