The Office of Tax Simplification (OTS) has begun its review of possible options for simplifying the taxation of partnerships by identifying the main areas of complexity, including whether all partnership accounts should use the same year end date, reports accountancy services Harris & Co.
According to the minutes of the first meeting of the partnership taxation committee which took place last month, encouraging all partnerships to move to an accounting period ending 5 April would reduce complexity, as would having a model partnership agreement available via HMRC.
The members of the committee, who include representatives from HMRC, ACCA, industry bodies, the National Farmers’ Union and individual firms, raised a number areas of complexity for review during the session.
These included the practical difficulties of having a ‘nominated partner’ to deal with tax issues with HMRC if partners fell out with each other; complexity in the application of Stamp Duty Land Tax as it relates to changes of partner and partners’ shares of assets, and in overlap relief; and international issues surrounding double taxation.
The committee also cited a number of problems around recording partnership expenses, the separation of partner and partnership return processing, partnership interest income, and loan interest relief. Participants reported that small partnerships are often confused about having to pay tax on shares of profit rather than the money they take out of the partnership, and one suggestion was to tax small partnerships on drawings rather than profit.
Several committee members pointed out that the suggested areas for review seemed to divide into two areas: some were relevant to smaller, less complex partnerships, while others affected large and complex partnerships. Reaching out to small, unrepresented partnerships was recognised to be difficult, and there were suggestions for engaging trade bodies and small business organisations as well as considering a survey of this group.
The OTS said the committee is planning to publish an interim report by the end of the year listing areas of complexity identified during the evidence gathering process, followed by a final report a few months later which will make specific recommendations.
The next committee meeting is scheduled for mid November.