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Mixed Partnership Consultation and Farming


Julie Butler - Expert Author

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10 June 2013

A recent announcement by HMRC has meant a very large potential problem for the current fashion in farming that is known as ‘corporate partners’. The mixed partnership can provide flexibility and yet save income tax and Class 4 NIC through the corporate entity by not having to pay higher rate tax until profits are ‘drawn down’.

HMRC has published an open consultation on changes to two aspects of the tax rules on partnerships in order to prevent tax loss arising from disguising employment relationships through limited liability partnerships, and certain arrangements involving allocation of profits and losses among partnership members, ie the corporate partners.

The changes will take effect from 6 April 2014, with the government seeking views on proposals for changing the partnerships rules by 9 August 2013. At a practical level we have seen some ill-researched structures and also that corporate partners have been introduced without the protection of a Partnership Agreement.

On 21 May HMRC launched the consultation mentioned above into the two aspects of LLP and partnership structures, in an attempt to counter perceived abuse of these structures for tax avoidance purposes. This follows on from March’s Budget announcement that HMRC intended to focus on this area. HMRC believes that countering abuse of LLPs and partnerships will yield £300 million within two years.

The consultation paper sets out HMRC’s proposals to change the tax treatment of those they describe as ‘salaried’ members of LLPs and on taxing profits in mixed partnerships which would impact on the ‘corporate partners’ in farming.

Taxing profits in partnerships

One of the key focus areas of the consultation paper is ‘mixed partnerships’, and how they are taxed. ‘Mixed partnerships’ (including LLPs) are those comprising of a mix of individuals and companies as partners. In these arrangements the companies are usually owned by some or all of the individual members. HMRC believes there has been an increase in ’corporate partner planning’ for tax purposes and this has been seen in the farming world. In the view of HMRC such planning is trying to get the best of both worlds, combining the flexibility of partnerships with the benefit of lower corporate tax rates.

The consultation document proposals seek to reverse the advantage of the corporate partner where profit allocations in a mixed partnership are made to attempt to secure a tax advantage, by making the allocation for tax purposes to the individual partners subject to income tax on a ‘just and reasonable basis’.

The proposal will also affect farms who have introduced a company into their ownership structure to hold profits back within the farm for working capital purposes. Farming obviously involves a high level of working capital so corporate partners have been seen as very beneficial to farmers with high profit and a substantial and increasing quantum of working assets held in the business. The profits held back will prospectively be assessed to tax on the individuals at income tax rates, rather than on the company at corporation tax rates.

Farmers under the glare of HMRC


Overall HMRC present their proposals as an attack on abuse and to support fairness in the tax system. For many farming partnerships who enjoy trying to position themselves below the glare of HMRC this will place all their affairs under the spotlight.

Farms will no doubt be spending time over the next few months to ensure that their structure and internal arrangements are such that they are clearly not affected by the proposals. Will this mean the ‘death’ of the corporate partner? There is no doubt that some accounting firms have allowed artificial or ‘sham’ arrangements to evolve and these need to be reviewed carefully. Examples are:

•               No company bank account

•               No company purpose, e.g. contract farming, specific risk project

•               Balance Sheet reflects simply loan with a limited company

As detailed above, it is proposed that the new legislation will be effective from 6 April 2014 and will affect all structures and arrangements concerned from that date, not just new arrangements and structures affected on or after that date.

About the Author

Supplied by Julie Butler F.C.A. Butler & Co, Bennett House, The Dean, Alresford, Hampshire, SO24 9BH.  Tel: 01962 735544.  Email;, Website;

Julie Butler F.C.A. is the author of Tax Planning for Farm and Land Diversification (Bloomsbury Professional), Equine Tax Planning ISBN: 0406966540, and Stanley: Taxation of Farmers and Landowners (LexisNexis).


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Article Published/Sorted/Amended on Scopulus 2013-11-21 10:02:10 in Tax Articles

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