2014/15 LLP Tax Returns: Red Flags

Despite the fact that changes to partnership taxation came into force on 6 April 2014, many limited liability partnerships (LLPs) may not have assessed the impact on their business until now. However, with 2014/15 partnership tax returns falling due, LLPs will be forced to take account of the changes when finalizing their financial statements and tax returns, and to be prepared to defend themselves against HMRC’s expected scrutiny.

The 2014/15 partnership tax returns will be the first data collection under the new tax rules and HMRC’s automated systems will be set with red flags to tease out non-compliance to initiate an enquiry. Based on the tax changes, we expect these to be:

  • allocations to a corporate member of a mixed member partnership
  • a high ratio of individual partners to employees
  • fixed individual partner allocations (year-on-year), and
  • variable individual partner allocations (relative to other partners year-on-year)

HMRC has made it clear that tackling perceived abuse of the new rules is a priority. Failure to act could give rise to an unexpected tax charge for individual members and potential additional employer’s national insurance contributions for the business, along with associated interest and penalties in some cases.

All LLPs should review the changes and determine how the new tax rules apply to their circumstances, then evidence the steps taken to assess and determine the treatment.

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