DWF and Weightmans are the first two firms to confirm that they are reviewing the way they define fixed-share partners as a result of HM Revenue & Customs’ (HMRC) proposed changes to the partnership tax regime.
The new rules seek to clarify the definition of LLP membership by determining whether fixed-share or salaried partners should be classified as employees for tax purposes. The taxman is also aiming to clamp down on the tax benefits of so-called ’disguised salary’ (17 December 2013).
HMRC’s new tests of employee status in a partnership include the level of a partner’s variable profit share; influence on management decisions; and the amount of capital invested by the individual partner.
Weightmans managing partner John Schorah said that fixed-share partners are not currently expected to inject capital into the firm but that a consultation into changing this and other implications of the HMRC’s proposals had begun this week. The consultation is due to close at the end of the month.
DWF is yet to open a formal consultation with its fixed-share partners but has begun a process of reviewing the issue with its tax advisers.
The firm’s finance director Alex Hodgson said: “The majority of our members are unaffected by HMRC’s proposed changes to the taxation of members and so there isn’t a huge impact on our business. These proposals are deliberately targeted towards those fixed-share members who are, in reality, disguised employees with no risk or variable reward within the business, whereas our fixed-share members have always had an element of variable pay and have always had risk through having capital invested within the business.”
Separately last month Weightmans was granted an alternative business structure licence from the Solicitors Regulation Authority, paving the way for non-lawyers to join the partnership (23 December 2013).
DWF recently made up 10 new partners in its annual promotions round in mid-December (18 December 2013).