Draft legislation to enforce the government’s clampdown on ‘disguised employment’ through limited liability partnerships (LLPs) has been published while consultation on the policy is still under way.
The draft National Insurance Bill, published this month, would require many LLP members to pay higher national insurance contributions (NICs) by removing an automatic exemption.
It follows an announcement in this year’s budget that the government intended to remove the ‘presumption’ that LLP members are self-employed rather than employees.
A consultation on the proposals runs to 8 August.
However Inez Anderson, partner, employment tax and incentives, at accountants Smith & Williamson, said that if the draft bill is enacted, from April next year LLPs will have to consider whether each individual member is employed or self-employed for national insurance purposes.
‘This will leave LLPs with some key decisions,’ she said. ‘For example, will the employers’ NIC be allocated to the affected members, reducing only their profit shares, or will the profit shares of all members be reallocated after taking this additional expense into account?’
David Teale, tax expert at DTE Business Advisers, said that the new tax regime may cause important changes to the structure of LLPs.
‘The changes mean that members will in future have to prove they are self-employed by the application of key employment tests rather than by presumption of being a member of an LLP.’
Teale continued: ‘Anybody thinking of setting up an LLP structure will have to consider the impact of these changes before they do so and those who have an existing structure affected by the change of rules will need to review their arrangements accordingly.’
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