The biggest anti-avoidance measure in the budget is an attack on disguised partnership arrangements, which HMRC are forecasting will raise more than £300 million a year, whilst the GAAR will raise a tiny proportion of that.
Now I have no problem with any attack on artificial arrangements - and if LLPs and partnerships are being used to pay people as partners who are really employees then I have no problem with HMRC tackling the issue. Except for the fact that I think they've always had that power. I can recall having correspondence on it with the Inland Revenue as was in the 1980s.
In that case I have several problems with this move. The first is that unless there is to be a presumption that all partners are employed (which seems to be the implication in the case of LLPs) then this is going to be very hard to police and I doubt that when HMRC are still facing massive job cuts that they will have the resources to police this.
Second, presuming partners are not self employed is going to irritate some very powerful lobbies. Start with all accounting and legal partnerships. They wont be happy. Expect a backlash.
Third, applying PAYE to an income that is not determined until a profit can be struck is going to be hard: I await to see the regulations. I hope some very sensible drafting is taking place to identify those, for example, guaranteed against losses or having a guaranteed income with a very small part variable based on profit being the target or the small business community in the UK will have good reason to think this is hitting the wrong target.
Last, this is hitting the wrong target! Very obviously the biggest employment abuse in the UK is not in partnerships but in limited companies, of which hundreds of thousands exist solely to get round NIC, which this government is entirely ducking as an issue and which would collect billions and not hundreds of millions a year if tackled.
So, tackle the abuse by all means, and make sure the regulations are well drafted. But please also tackle the much bigger issue of small company abuse if you are really serious about this George Osborne. Until then it is hard to consider this proposal as credible. I'd rate it a high risk for a u-turn, and that may be a shame.
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It really is time that the taxation of individual income was harmonised across all engagement types. Do that and the entire problem goes away forever.
I’m not a fan of tax breaks, but if there needs to be any then in should be for employing unconnected third parties. That is after all what we are in desperate need of.
There should be no state subsidy for working for yourself. The extra should come from the charge you make to your clients.
Hoping for good drafting really is a sign of wishful thinking.
Since when have legislators ever worried about technical issues such as being able to apply PAYE to an income that is not yet determined?
The people who come up with these rules have been PAYE employees their whole lives and think everybody else should be too. Worrying about all those accountants and lawyers that provide tax avoidance opportunities will be the last thing on their minds.
It must have come as a nasty surprise to you as – if the drafting is poor – the amount of tax and NI you personally will have to pay as an employee rather than a partner in Tax Research LLP will result in a hefty increase by my calculations. Is it only me that finds it ironic that the UK’s leading and most effective campaigner for tax justice may just have been caught (inadvertantly?) by an anti-avoidance measure?
I very strongly suspect that the activities of Tax Research LLP are not the target of this proposal
If a tax avoidance measure changed the tax status of all LLPs i think there will be considerable and quite fair concern from those who are fully and openly taxable on trading income
And there will be migration to self employment – which is so obvious i really cannot see real trading income as the target
but we will see
but whatever happens i am certain i am not tax avoiding by being self employed when the law has specifically allowed it
The law also allows for Amazon to be based in Luxembourg and operate warehouses in the UK and Starbucks to transfer costs to the Netherlands etc (as approved by V Cable) so they cannot be tax avoiding either?
Read my ebook
Max can’t read your ebook as he’s now boycotting it based on this post.
Frankly I think most of the money will be raised from the corporate partner planning. There are a number of schemes around and while I don’t personally put clients into them I know of lots of small firms, particularly in the north of England as it happens, who do. Our Leeds office has actually lost quite a few clients to more aggressive small firms on this.
That now looks likely to me too
It really is ironic that you now find yourself a target of anti avoidance legislation, and how you always seem to try and wriggle out of tax measures when they impact you, but condemn others for doing the same thing
Who said I was the target?
Having read comment in the Lawyer and elsewhere it is clear that this is aimed at junior partners who carry no risk and should therefore be treated as employees and corporate partnership abuses
Those properly self employed are not affected
I have no doubt this goes nowhere near Tax Research LLP which I believe to be wholly tax compliant
Using the law as an excuse is no excuse when it comes to avoiding your fair share!
Hi Richard, no doubt a busy 24h for you! Great stuff on te J. Vine show! Following up on Max’s point, i appreciate you are within the letter of the law but do you gain a tax advantage by being a self-employed opposed to a Partner in Tax LLP an employee?
There is no doubt if my income was paid by an employer that more tax and NIC would be due
But that assumes I have an employer and that hasn’t been the case for 28 years now
LLP status respects that. The new anti-avoidance rule stops disguised employments within LLPs – it is not intended to tackle the genuinely self employed. I sit with a very relaxed conscience on this one
Rm is right. This is aimed at partners who have no capital at risk, which therefore shouldn’t catch tax research nor all of the big 4 or magic circle law firms who all require significant personal contributions from people who become partners in the partnerships
After some very good articles, I see you have reverted to that old chestnut re NI on micro companies. NI is tax by another name. Are you seriously suggesting (or being tongue in cheek? – again) that more tax is imposed on the micro company sector.
It’s tough out here in the real world, you try yourself struggling in current (or any)economic conditions, with competitive markets,no funding, no holiday pay,no sick pay etc. It’s here economic growth will come, not from the academic sector.
I have suggested better structures – which do not involve avoidance
But whilst there is avoidance and abuse of small limited companies to disguise employment sure as heck I will talk about it
Richard, One thing to throw at all the “Doubting Thomases and Thomasinas” is that I note you did not trade through the medium of a company in order to avoid NIC, so you do walk the talk!
It seems odd that my comment from yesterday wasn’t approved. Did I mention something I shouldn’t? Fulcrum Publishing Ltd is a matter of public record and it has been closed.
The fact you haven’t approved my comment makes me very curious. All I was saying is that this comment isn’t strictly accurate. By not allowing an appropriate and balanced correction and this comment to stand, the editor of this blog is deliberately misleading the public.
As to the other matter, I was merely pointing out that it is obvious that there is already anti-avoidance legislation that would be applicable to Richard’s situation, were he using a LLP to avoid NICs.
I deleted a comment that has been made so many times in so many places that further discussion is not needed
That’s what editors do
Yet it was appropriate here. And it pointed out that you wound up the company last year.
An editor would not have allowed the incorrect comment through without correction.
The correction would have been it had been dormant for years
I was simply referring to what I had read on Wikipedia.
But this odd conversation has prompted me to check it out and you had a less dormant company, The Tax Gap Limited, that was also dissolved last year.
This is besides the point, but once you let the original comment through I feel it is necessary that you apply proper journalistic standards and allow sufficient scope for corrections and clarifications.
The Tax Gap Limited had not traded for six years when it was also struck off – a point publicly known and also previously disclosed
You make an entirely false suggestion – that I was hiding something
If it has been already discussed I can’t be hiding it
So the deletion was to save wasted time
As will further comments on this theme waste time
My suggestion is that given your active moderation policy it seems deliberately misleading if you allow a factually misleading statement to be posted and that you then censor one which corrects that statement.
My point is that is deceptive on your behalf.
It is far more wasteful of my time having had to check the circumstances of your shareholding history due to your suspicious behaviour rather than you simply allow my original comment to stand which was entirely proper. I did not insinuate anything, merely correct a comment which was incorrect.
And I am saying you’re wasting my time and everyone else’s
And let’s be clear: this is a blog, not a newspaper.
Chris,
Please could you stop trying to play the game of “Gotcha”. It is pretty obvious to me that you are trying to paint Richard as a Charlatan to undermine this blog. This is very boring right wing tactic.
The attack on LLPs is to deal with an issue which is gaining traction in the SME sector, where rather crudely put employees are dressed up in drag to look like the truly self employed.
Once again the current Government are quite prepared to do tackle avoidance by “little people”, while doing absolutely nothing to tackle the large scale looting, sorry I got carried away there, that should be avoidance perpetuated by multinationals and the extremely wealthy.
The multinationals gaming of the system is left untouched, but any done by SMEs is clamped down. This is just another symptom of which there are many of “crony capitalism”. Real capitalism died many years ago, but “the body” was only interred when the too big to fail banks were bailed out!
Thanks for the support
I wonder when people will realise these stupid games fail?
Suggesting, for example, that I’m an employee of the TUC is pretty far fetched
But I do undoubtedly advise them