The 2014 Budget is still two months away but partnership and Limited Liability Partnership (“LLP”) businesses with and without corporate partners or members should spend time absorbing the impact of the proposed new rules for the taxation of partners’ income to be set out in the 2014 Finance Bill.

The Chancellor believes he will raise up to £1 billion from these measures, so there will be a significant impact on firms and partners alike.

HMRC announced in the 2013 Autumn Statement they are seeking to change the employment status of members of LLPs where they have a fixed salary, have little or no control over the operation of the LLP’s business, and their contribution to the LLP as capital is small compared to their salary.

In these circumstances HMRC want their income taxable under PAYE and NIC with effect from April 6, 2014.

More broadly, HMRC also announced that with effect from December 5, 2013 they are seeking to reduce the scope for tax-motivated allocations of business profits and losses where partners in a partnership or members of an LLP include both individuals and companies.

Tax savings which could be achieved by allocating profits to the corporate partners or members so that the income was taxed at the lower tax rates applicable to companies will be stopped.

These measures will impact on business structures which have been set up solely to avoid tax, and those types of partnership business which have a genuine commercial reason for adopting the structure.

With HMRC’s stated aim to collect more tax from mixed partnerships and LLPs these types of businesses could look at a number of alternative business structures.

Consideration of the tax and commercial aspects of any changes will take time and thorough consideration before new legislation comes into effect in April.