Warning to companies as new tax rules loom

Advice: Rachel Marsdin of Moore and Smalley
Advice: Rachel Marsdin of Moore and Smalley
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Professional services firms in Lancashire are being urged to review the way they reward their staff after the government announced new rules aimed at reducing lost tax revenue.

Following a long running consultation, the government is to introduce Disguised Employee legislation in April 2014 which will affect some salaried partners and “fixed-share” members in so-called Limited Liability Partnerships.

The rules will have an impact on professional firms, such as law, architecture and other property consulting businesses as many are set up as LLPs and use such management structures.

Rachel Marsdin, tax partner at Moore and Smalley, said: “HMRC has become increasingly concerned by some LLPs who reward some of their members on terms which closely resemble a reward package of an employee.

“This leads to a loss of tax for HMRC as the LLP and salaried member do not need to account for employer and employee national insurance contributions on the reward package.”

The Disguised Employment legislation comes into force from 6 April and seeks to tax the individual LLP member as an employee rather than a self-employed partner. So-called real partners will remain taxed on a self-employed basis.

Rachel added: “There is detailed guidance on how HMRC will interpret the employment status of those affected by the new legislation. Those who may be affected should review how they reward individual LLP members, as well as assessing the management structure and decision-making processes within their firm.”