HMRC to review partner status

The budget informed us that HMRC has the intention to scrutinise partnership agreements.

Partnerships are most popular within professional service industries such as lawyers and accountants. The main reason being is to avoid the income tax effects of issuing shares to employees wanting to take part in the business, avoid problems where the shareholders wish to exit the business, additional paperwork involved in share schemes and their restrictions.

Within professional services, the business is only as good as its people. Fancy marketing may bring in clients but unless you can deliver and provide the high quality service, they will leave damaging the goodwill of the firm. The main cost to these businesses is understandably the employees themselves.

With the introduction of Limited Liability Partnerships, this has opened up further opportunities to control and minimise this cost. One opportunity is to make employees partners of a firm. The benefits here being the removal of employment rights, the elimination of jobs taxes and the limited status ensure no other partner can suffer losses due to other partners actions.

HMRC will be looking at partnership arrangements to ensure they do not disguise employment relationships along with other common tax reducing techniques.

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