​HMRC green lights cash calls but slams door on firms cutting debts

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  • The more I read about this and see HMRC's attitude the more I think this is less to do with tax raising( other than the more egregious examples of manipulation) and more to do with a cynical attempt to boost the amount of lending in the economy to what are in the main low risk borrowers, to be able to publicise new figures for lending and keep the money pump primed.

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  • The specific TAAR example in which the firm uses cash injected to pay off debt is nonsense. Moreover, it's at odds with HMRC's own *general* position on TAAR applicability. See the top of page 43 of the revised guidance:

    "The capital contribution requirement is fairly prescriptive and HMRC would accept that a genuine contribution by the individual to the LLP (within the meaning of section 108 ITA 2007), intended to be enduring and giving rise to real risk, will not trigger the TAAR.

    Such a contribution may be obtained through a loan from a third party, typically a
    bank. The firm might itself arrange the loan through a partnership facility. Provided that the debt will then be that of the individual partner, this manner of obtaining the funding will not trigger the TAAR. "

    To my reading, that means TAAR would be triggered if the LLP directly or indirectly removes risk from the partner by, for example, guaranteeing the partner's loan. However, if the partner is left totally to his or her own devices to obtain the loan, then there is an enduring contribution giving rise to real risk for the partner. How is this a problem, no matter how the LLP uses the funds? According to HMRC's general rule, it's not.

    That TAAR example must be a mistake. Either that, or HMRC is even more stunned than we all thought.

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  • One aim is clearly to ensure that some meaning is given back to the idea of "partnership". The latest ruling most makes sense if it drives a return to equity partnership - and that of course is best driven by encouraging/requiring a re-allocation of the capital contribution among all partners. If therefore there is no need for additional capital, this is best addressed by a pro rata repayment to "full" partners and a return to "ownership" of the business amongst all described as partners. If, in turn, this drives an erosion of the ever more fanciful categories of pseudo partners in too many partnership agreements, a faster route to influence for younger lawyers, and a more lively feel for the professions (lawyers especially), this will be good news on many fronts.

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