Mixed Partnerships Tax Rules

Mixed Partnerships Tax Rules
We wanted to share with you the new tax rules on profit sharing for mixed partnerships.  Changes have been introduced to counter some of the tax advantages that were available.

The individual and non-individual members of mixed partnerships have enjoyed considerable flexibility in recent years.  The HMRC has implemented changes to counter some of the tax advantages they have enjoyed. 
2014 saw the enactment of a Finance Bill that introduces new rules that now enable HMRC to tax any corporate partner’s excessive profit share in the hands of individual partners at their higher personal income tax rates.

Effectively, this change gives HMRC the power to override the profit sharing arrangements agreed by the members of a mixed partnership that have not acted at arm’s length in order to secure a tax advantage.

Determining the appropriate profit share for a corporate partner now involves consideration of both the return on capital accounts and the commercial pricing of services provided by the partners.

In response to this change Marshall Smalley recommend that mixed partnerships have contemporaneous documentation with supporting evidence as far as possible to justify their profit sharing arrangements . This will put these partnerships in the best position to defend their arrangement in the event of an HMRC challenge going forward.

If you would like to discuss how the changes impact on your partnerships then please do get in touch by email on This email address is being protected from spambots. You need JavaScript enabled to view it. or give us a ring on 0115 956 9452.
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