Tag: LLP

Partnerships with corporate partners eligible for full expensing

Posted on by Alicia Sprott

HMRC confirmed in early 2024 that partnerships with corporate partners (also known as mixed partnerships) are now able to claim capital allowances which have previously only been available to companies within the charge to Corporation Tax.  The capital allowances are first year allowances such as full expensing.

Full expensing allows companies (and partnerships with corporate members) to immediately deduct the entire cost of qualifying capital expenditures from their taxable income, in the year of purchase. This contrasts with traditional capital allowance methods, where the cost is spread out over several years. For partnerships with corporate members, investments in assets, such as machinery, equipment, or vehicles, can result in receiving tax relief (at up to 25%) on these investments immediately, which can alleviate the cash flow issues of investment. Consequently, more funds become available for reinvestment in the business or distribution to partners.

In conclusion, partnerships with corporate members in the UK stand to benefit significantly from full expensing.

Tax implications

The implications of these tax incentives are extensive for partnerships. By encouraging investment in critical assets, the Government aims to foster business growth and competitiveness. For partnerships with corporate members, these incentives translate into enhanced financial performance and increased flexibility in capital allocation. With reduced cash flow constraints, partnerships have the opportunity to invest in innovation, expansion, or infrastructure improvements, all of which can contribute to long-term success.

However, to fully capitalise on these incentives, partnerships must ensure compliance with relevant tax regulations. This involves accurately identifying qualifying capital expenditures, maintaining thorough records, and adhering to reporting requirements set by HMRC legislation. Given the complexity of tax planning, partnerships may benefit from seeking guidance from tax professionals or accountants to navigate the intricacies of these incentives and optimise their tax strategy.

In conclusion, partnerships with corporate members in the UK stand to benefit significantly from full expensing and super-deductions. These tax incentives provide valuable opportunities for partnerships to enhance their financial position, drive investment, and contribute to economic growth. By leveraging these incentives effectively and ensuring compliance with regulatory requirements, partnerships can position themselves for sustained success in an increasingly competitive business environment.

For advice on these issues and capital allowances for partnerships generally, please contact Kiran Chotai, Private Client Senior Manager.

Transitioning from employee to partner

Posted on by Alicia Sprott

Employment status

As an employee, you are taxed on the income received each month (or other agreed period), with Income Tax and NI deducted at source through the payroll under Pay As You Earn (PAYE). As a partner, you are taxed on your share of the profits of your partnership, based on your agreed profit-sharing ratio. This may differ from your drawings.

When you become a partner however, you will be required to file an annual Self-Assessment tax return and are likely to be required to make tax payments on account, twice a year:

  • On 31 January (within the tax year)
  • On 31 July (after the tax year ends)

Each payment on account is usually 50% of the previous tax year’s liability. In addition, a balancing payment may be due on 31 January following the end of the tax year.

National Insurance Contributions

As an employee, you are subject to Class 1 National Insurance Contributions (NICs). In 2024/25, the rate for earnings between £12,570 per year and £50,270 is 8%, with earnings in excess of £50,270 at a rate of 2%. Your NICs are deducted from your salary by the employer.

However, as a partner, from 2024/25, you will be subject to Class 4 NICs. It is also possible to pay Class NIC, voluntarily.

For 2023/24, Class 4 NICs are paid at 6% on your annual taxable profits between £12,570 and £50,270, and a further 2% on profits over £50,270.

During the year of transition, you are likely to have paid Class 1 NICs on your employment income. Where an individual is both employed and self-employed in a tax year, the ‘annual maxima’ is calculated to allow for relief for the individual who is essentially paying Class 1 and Class 4 NICs in one year.

Benefits and expenses

Any benefits you receive as an employee are either reported through payroll or via a P11D form. Any benefits you receive as a partner are disallowed within the firm’s tax computation, therefore no tax relief is obtained.

As an employee, your employer would normally reimburse business expenses on the basis that the expense is directly related to your employment. When you become a partner, it is similarly important that all business expenses are accounted for in the partnership’s annual tax return.

Pension

As an employee, you are usually part of the workplace pension and employee contributions are complemented by the employer’s contributions. As a partner, you are solely responsible for your own pension and there are no employer contributions. It should be noted that in the year of transition, caution should be taken as you will need to ensure you do not exceed the pensions annual allowance. Pension contributions in excess of the annual allowance of £60,000 can result in a tax charge at your marginal rate (up to 45%). This allowance is reduced for higher earners.

Registering as a partner

To begin the transition to a partner, an SA401 form should be completed by the individual joining the partnership.

If you would like to discuss your transition from employee to partner in more detail, please reach out to Kiran Chotai, Private Client Senior Manager, or your usual haysmacintyre contact.

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