Summary and Background Partnerships: Class 4 contributions and limited liability partnerships
17.As announced at Budget 2013, and following a formal consultation in the Partnerships Review between May and August 2013, draft Finance Bill 2014 legislation (clause 68 and Schedule 13) was published for consultation between December 2013 and February 2014 to:
18.The Government is also setting up a new statutory mechanism for alternative investment fund managers (AIFMs) who operate as a partnership to collect tax from the partnership, rather than from the individual member, on profits allocated to that individual but subject to deferral under an EU Directive on AIFMs (2011/61/EU2). This addresses the issue arising from members having to pay tax on profits that they are unable to access as a result of the regulatory requirements without the need to turn to tax-motivated mixed membership partnership arrangements.
19.This Act only covers the associated NICs changes that relate to salaried members and AIFMs. There are no changes to NICs legislation to counter tax-motivated allocations of profits and losses in and disposal of assets through partnerships. With regard to (i) section 14 of the Act provides a regulation making power to allow the Treasury with the concurrence of the Secretary of State to reclassify certain LLP members as employed earners for NICs purposes (and employees for the purpose of the legislation governing statutory payments) when certain conditions are satisfied. The conditions will follow those set out in income tax legislation to be included in Finance Act 2014 and will broadly be that the individual member of the LLP is rewarded by a fixed salary, does not have significant influence over the affairs of the firm and carries no or little economic risk in the LLP.
20.The powers additionally allow the Treasury with the concurrence of the Secretary of State to counter-act the use of companies or other intermediary structures to avoid the impact of the measure.
21.Section 13 of the Act provides a regulation making power to modify the way in which liabilities for Class 4 NICs of partners in firms are determined, where a provision of the Income Tax Acts relating to such partners is passed or made. The power is intended to be used to address a specific issue concerning restricted access to profits earned by members of AIFM partnerships, which arises as a result of the regulatory requirements on their remuneration contained in the EU Directive. The corresponding tax legislation relating to such partnerships is to be introduced in the Finance Act 2014.