HMRC have confirmed that legislation will be introduced so that any retrospective variation to a partnership’s profit sharing arrangements made after the period end will not apply to returns for accounting periods starting on or after 5 April 2018.
This is part and parcel of HMRC’s August 2016 consultation aimed to improve the tax administration of partnerships, which mainly relates to more complex partnership structures used as investment vehicles.
The proposal to legislate regarding variations to a partnership’s profit sharing arrangements agrees with HMRC’s currently held view that profit sharing arrangements cannot be varied retrospectively, which is detailed in their official guidance. However, this does have the potential to create problems where farming partnerships do not consider on a timely basis various practical situations where the partnership’s profit sharing arrangements might be varied from year-to-year or where there are changes to the partnership, such as:
We will have to await the draft legislation, which will probably be issued following the Autumn Budget, to see how HMRC intend to enforce this proposal. However, best practice must remain to document any variations to the partnership’s profit sharing arrangements before the accounts year end.
If you have any queries, please contact your usual consultant or Carlton Collister on 01993 886418 or email@example.com