Partnership tax consultation – very much a work in progress

In August 2016, HMRC launched a consultation on 'Partnership taxation: proposals to clarify tax treatment’. Many partnerships will regard these initial proposals with alarm because, if taken forward as they stand, they could have far reaching implications for some partnership structures. 

BDO has responded to the consultation and we have highlighted that, contrary to the Government’s expectation that the proposed new reporting rules would reduce compliance costs, we foresee them creating a significant administrative task for many partnerships. 

It became clear in our meetings with HMRC to discuss the consultation that the Government is questioning whether it is possible in law for a nominee to hold an interest in a partnership formed in the UK. There are many such arrangements that permit the smooth running of many commercial structures. The cumulative impact of changes to prevent their use and the other proposals could damage the attractiveness of using a partnership in the UK. If implemented, the outcome may be that many partnerships choose to relocate to other tax jurisdictions or use other structures that better meet their needs. 

Preventing tax avoidance is the main driver behind these proposals - although there is a question as to whether the suggestions are a sledgehammer to crack a nut. 

In their current form, the proposals do not reflect the commercial realities of partnerships and I hope they can be improved significantly before they are implemented. This will take time - although there are some indications that we may see some draft legislation as early as 5 December this year. 

BDO has already met with HMRC several times to discuss the proposals and we will continue to play a full part in the consultation process. If you would like a copy of our detailed submission on the proposals or want to find out how your partnership could be affected, please get in touch through your usual BDO contact or