Addleshaw Goddard has joined the legions of firms calling for a cash injection from fixed-share partners (FSPs) in response to HM Revenue & Customs’ (HMRC) partnership taxation crackdown.
Partners voted in favour changing the firm’s partnership agreement in response to the new legislation last Thursday (20 March), meaning that 60 FSPs must make a cash investment of just over 25 per cent of their salary.
Addleshaw Goddard’s head of employment Michael Leftley, who led the firm’s response to the new legislation, said the firm was calling for investment of a few percentage points above the 25 per cent minimum stipulated by HMRC “to leave a cushion in case of admin errors”.
Asked to clarify why the firm needed a margin for error, Leftley: “Why would you set something at the absolute cusp of the limit set by HMRC when they’re not even sure how to define a disguised salary?”
It comes just a week after managing partner Paul Devitt resigned a year early following a series of internal financial reporting errors, including the under-estimation of the number of points in circulation.
This meant that partners’ share of profits was calculated on the assumption that there were 9300 points in circulation not the accurate figure of 9832. The error, which led to a misleading year-end pounds per point value being circulated to partners, was picked up before drawings were made (17 March 2014).
HMRC first unveiled the new legislation in December (17 December 2013), and issued updated guidance at the end of last month (26 February 2014), warning that the targeted anti-avoidance rule could be triggered if a firm used the new funds to pay off other debts or covered the interest loan repayments.
Addleshaws had planned to sugar the pill by covering the interest on FSPs loans but has since been forced to review that policy. Leftley confirmed the firm was still looking into whether that was an option but said: “The terms by which [Addleshaw Goddard] sought approval from FSPs is confidential.”
The growing number of firms responding to the change with cash calls led industry sources to suggest last month that the UK’s leading banks are struggling to cope with the demand for new loans in the run-up to the tax law changes (18 February 2014).
Nabarro partners are due to vote on a similar move this month (26 February 2014), following news that TLT (10 February 2014), Trowers (10 February 2014) and Hill Dickinson have all decided on that path (19 February 2014). Weightmans’ partners have also opted to put money into the partnership.