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Partnership taxation – proposals to clarify tax treatment

Partnership taxation

Revised legislation governing certain aspects of partnership taxation has been published.

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Summary of proposal 

This legislation aims to provide clarity over certain aspects of partnership taxation. It addresses the basis period and reporting rules where bare trustees or other partnerships are partners, a mechanism for the resolution of disputes between partners and a relaxation of the reporting requirements for investment partnerships (click here for a link for our previous comment on the draft legislation issued in September). 

Key changes from the draft legislation 

Following consultation with KPMG and other professional firms, the proposed measure to directly link the allocation of taxable profits to accounting profits has been dropped. HMRC have advised that this measure was intended to directly link taxable figures to commercial profits but the legislation had unintended consequences, for example, if one partner had an expensive car, any addback for personal use would have been spread among all the partners rather than allocating it to the specific partner. Whilst partnerships could have adjusted for this between the partners, this would have added an additional administrative burden.

Timing 

The measures will apply to the 2018/19 tax year apart from the case of investment partnerships which do not carry on a UK trade/profession or UK property business where the slightly reduced reporting requirements are likely to apply to the 2017/18 partnership tax returns. 

Our view 

The news that the link between taxable and commercial profits has been dropped will be welcome news for many partnerships and it is pleasing that HMRC listened to representations on this issue. However, the original measure was proposed by HMRC to counter perceived tax avoidance in this area and as a consequence we may see a more targeted measure in the future.

For further information, please contact:

Roisin Byrne – Manager, Tax

Paul Harden – Director, Tax

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