One is never sure of the extent the changes in legislation are deliberately widely drawn or the consequential impact is wider than anticipated. Take professional practices as an example.<\/p>\n
Traditionally professional practices were partnerships and the introduction of limited liability partnerships often resulted in a transfer from one partnership structure to another. HMRC\u2019s legislation and practical applications made this a straightforward process.<\/p>\n
In recent years professional practices have transferred activities into subsidiaries of the partnership e.g. as a staff employment company or to isolate high risk ventures or non-core service streams.\u00a0 Typically these are risk mitigation strategies or for employee incentivisation reasons.\u00a0 I have no doubt that some partnerships did this for tax planning as HMRC\u2019s legislation could require the subsidiary to transact with the parent in ways which were tax efficient.\u00a0 HMRC prevented this tax planning for all relationships even those where there was no tax planning motive.<\/p>\n
Some partnerships have partners who are corporates. This could be tax efficient and was acknowledged as such by HMRC for many, many, years.\u00a0 Often these corporate partners were introduced for commercial reasons.\u00a0 A typical example would be a partnership which found raising debt finance difficult and therefore used a corporate partner to accumulate profits which were then lent to the partnership as a cheaper form of finance than partners paying income tax on profits and lending the net sum back to the partnership.\u00a0 I have no doubt that some parties use this for tax planning purposes.\u00a0 HMRC closed this opportunity down for all partnerships even those which had corporate partners for reasons which did not involve tax planning.<\/p>\n
The unintended consequences of both those structures are broad. What I do not understand is how those changes in tax law apply to the commercial world.\u00a0 For example, the ability for investors to invest in law firms is available and has been well publicised by the law society.\u00a0 Investors invariably want to invest in a company.\u00a0 This suggests that they would want to invest in a company in which the partnership has transferred its trade.\u00a0 However, the changes outlined above would have to be considered and treated with care.\u00a0 Alternatively, they could invest in a company which is a partner in the partnership.\u00a0 Again the changes above would need to be treated with care.<\/p>\n
An alternative would be to ditch the partnership and incorporate it into a company which the partners and the investor both are shareholders. Until recently incorporation could be done tax efficiently.\u00a0 That has now been stopped, even if the incorporation is for commercial reasons.<\/p>\n
I am the first to advocate legislation which prevents parties using tax ideas for non-commercial matters. However I would urge those who further consider tax legislation to understand the wider ramifications for genuine business structures.<\/p>\n
Those who are responsible for managing professional practices should also be mindful of the implications. Intended or otherwise.<\/p>\n","protected":false},"excerpt":{"rendered":"
One is never sure of the extent the changes in legislation are deliberately widely drawn or the consequential impact is wider than anticipated. Take professional practices as an example. Traditionally professional practices were partnerships and the introduction of limited liability partnerships often resulted in a transfer from one partnership structure to another. HMRC\u2019s legislation and[…] <\/p>\n