HMRC have published a policy paper detailing several measures designed to provide additional clarity over the following aspects of the taxation of partnerships:
– how the current rules and reporting operate in particular circumstances where a partnership has partners who are bare trustees for another person or that are partnerships; and
– the allocation and calculation of partnership profit for tax purposes.
The legislation is to be amended to clarify that partnership profits for tax purposes must be allocated between partners in the same ratio as the commercial profits. In addition, it will be made clear that the allocation of partnership profits shown on the partnership return is the allocation that applies for tax purposes for the partners. This rule will have effect for accounting periods commencing after the date of Royal Assent.
A new process will also be introduced to allow disputes over the correctness of the allocation of profit (or loss) for tax purposes to be referred to the tribunal to be resolved. Disputes over the quantum of partnership profits are not within the scope of the new process. This will apply for 2018/19 partnership returns.
Partners in nominee or bare trust arrangements
This change clarifies that where a beneficiary of a bare trust is entitled absolutely to any income of that bare trust consisting of profits of a firm, but is not themselves a partner in the firm then they are subject to the same rules for calculating profits etc and reporting as actual partners.
Partnerships with partnerships as partners
A partnership that has partners that are themselves partnerships (participating partnerships) will be required to include, for each of the participating partnerships, the share of the partnership’s income or loss calculated on all four possible bases of calculation unless details for all the partners and indirect partners are included on the partnership statement.
Investment partnerships
Partnerships that don’t carry on a trade or profession or a UK property business won’t be required to return the tax reference for a partner if that partner is not chargeable to income tax or corporation tax in the UK and the partnership reports details of the partner to HMRC under the CRS.
Partnerships that are partners in another partnership
If a partnership (the reporting partnership) is a partner in one or more partnerships that carry on a trade, profession or business then the legislation will make clear that the profits or losses from each partnership must be shown separately, and separately from any other income or losses, on the reporting partnership’s return.