Proposals to clarify the tax treatment of partnerships

Published: 27 March 2017

HM Revenue & Customs (HMRC) has published a summary of responses to its proposals to clarify the tax treatment of partnerships (consultation document). AIMA’s November 2016 response can be found here.

Based on the consultation outcome, we have identified the following policy directions:

  1. the Government intends to legislate to ensure that the beneficiary of a nominee or bare trust arrangement is treated as a partner and is to be identified on the partnership tax return, as potentially liable to tax on the allocation of the profits of the partnership;
  2. a profit-generating partnership will not be required to report on its tax return the ultimate recipients of its profits where these pass through a partnership chain, but will be required to provide computations of its taxable profits on all four possible bases (UK resident individual, non-UK resident individual, UK resident company, non-UK resident company);
  3. partnerships which are reporting financial institutions as defined by the OECD Common Reporting Standard (CRS) 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;
  4. the Government does not currently intend to enact a requirement for a payment on account in situations where reporting requirements are not complied with;
  5. the profit allocation stated in the partnership return will be the first point of reference for HMRC in determining the taxable profits of each partner and there will be no requirement for partnerships to notify HMRC of changes in their profit sharing arrangements;
  6. partners will be treated as taxable on their share in profits or losses that arose during the period in which they were partners and any retrospective variation to a partnership’s profit-sharing arrangements made after the period end will not apply for tax purposes; and
  7. the share of profits of partner that is a company chargeable to income tax rather than corporation tax will be calculated as if a non-UK resident company were carrying on the business.

If you have any preliminary comments on the proposals, please contact Paul Hale or Enrique Clemente.