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The British tax authority has declined to ensure that companies had feared that the company had feared for private equity and professional services that hundreds of millions of pounds would lead retrospective tax liabilities.
Last year, HMRC opened unexpected changes to the tax treatment of members of partnerships with limited liability – a structure that is used by many private -equity, accounting, legal and other professional service companies and opened the tax they are looking for.
After the industry lobby work and the British government, after a counter reaction caused by the budget in autumn, wants to reset relationships with the business, the HMRC contacted several professional bodies at the beginning of this month to confirm that it should reverse the course.
“The changed guidelines will actually reverse the changes that were made in February 2024,” said HMRC in the E -Mail, which was seen by the Financial Times.
The change was welcomed by the British Private Equity & Venture Capital Association and the Chartered Institute of Taxation.
The series dealt with changes to the rules introduced in 2014, in which criteria for the assessment were determined whether members of partnerships with limited liability were self -employed or employees. Before 2014, LLP members, who are normally referred to as “partners”, were generally recognized as independent.
According to the regulations, your employer, if a person is regarded as an employment, must pay a national insurance contributions of 13.8 percent of the employee’s payment, which increases to 15 percent from April.
Part of the tax regulations – “Condition C” – refers to how much capital a member contributes to the limited partnership. If there are less than 25 percent of their profit share, they are considered an employee. This has led to partnerships trying to ensure that capital contributions exceed the threshold of 25 percent.
However, the HMRC changed its instructions last year to say that the condition has deliberately not failed by affecting excessive capital contributions to avoid tax avoidance.
The BVCA started the government and complained that the change had been introduced without a consultation and was possibly retrospective.
Jitendra Patel, tax division of the auditing company BDO, said that the change in the past year has felt as retrospective measures because the tax rules have existed for 10 years. During this time, the HMRC had previously assured the company that they were able to meet the regulation C rule by ensuring that the capital contributions were over the threshold, he said.
It was “welcome” that the tax authority had changed the course, he said, but in the meantime affected companies had experienced “a lot of upheavals” and spent time and money to prepare to defend their position.
The HMRC said: “After we carried out a thorough review and carefully listened to the representatives of the industry, we decided that the anti-avoidance rule does not apply if charges are real in order to be permanent and lead a real risk. “
Christopher Thorpe, Technical Officer of the Ciot, said: “We are pleased that the HMRC has agreed to change its interpretation of condition C, since their previous interpretation could have equated harmless and commercial investments with improper actions.”
