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LLP partnerships could face 14% higher tax bills under HMRC crackdown

Some PMS practices could be faced with a tax bill increase of 13.8% from April as part of a crackdown by HM Revenue & Customs, the GPC has warned.

As part of changes to legislation from 6 April, HMRC will be looking into the partnership schemes of limited liability partnerships, the model used by some PMS and APMS practices.

Under existing legislation, partnerships do not have to pay employers’ national insurance contributions for partners, but from 6 April they will need to convince the taxman that the individuals are actual partners and not salaried staff in all but name.

Accountants have warned that standard partnerships – the model used by the majority of GP practices – are not likely to be targeted, but they should be aware of the changes.

Advice obtained by the GPC said: ‘From 6 April 2014, certain partners in LLPs will be regarded as ‘salaried members’. Salaried members will be taxable as employees. This means that the LLP will be required to pay 13.8% employers’ NIC on most remuneration paid to salaried members.’

Unlike standard partnerships, partners in LLPs have ‘limited liability’, meaning the risk is lessened if the partnership makes losses. Because of this, HMRC has long held concerns that some organisations were becoming LLPs in order to avoid employers’ national insurance payments.

LLPs will have to prove to HMRC that their partners are not simply salaried members of staff by demonstrating that less than 80% of their salary is guaranteed, they have significant influence over the practice business or that they make sufficient capital contributions from their income.

Bob Senior, chair of the Association of Independent Specialist Medical Accountants and head of medical services at Baker Tilly, said that traditional NHS practices are unlikely to be using the LLP model.

He said: ‘Some practices that have that structure will have to jump through hoops – the individual has to put some money in and have a reasonable proportion of your income that is variable.’

‘The majority of practices use a traditional partnership, which has no limited liability. Technically, HMRC might look at the situation of a fixed share partnership in those circumstances. But because it is unlimited, they are not so far up the HMRC’s radar….but a general partnership must be mindful.’