HMRC’s ill wind for junior partners

It’s taken its time, but late last Friday HMRC unveiled its updated guidance on the tax treatment of salaried LLP members.

The big news, in what is shaping up to be one of the biggest structural overhauls of the UK legal market in years, is that firms looking to avoid paying out to cover new national insurance contributions (NIC) should be ok, providing they can persuade their salaried partners to stump up extra capital. And providing their banks say ‘yes’.

The wrinkle are two-fold. First, banks are already under pressure to process thousands of new loan applications by 6 April. Even with the additional three months the Revenue is offering, the likes of Barclays and RBS might still feel there simply isn’t time. Maybe there’s an opportunity for niche lenders to step into the breach?

Second, the Revenue has said that anti-avoidance rules will be triggered if a firm uses its new funds to pay off other debts. Which means if banks are lending with strings attached then a firm could still end up with a higher tax bill.

The consensus in the market is that if a firm has borrowings and then secures a cash windfall, but doesn’t use it to pay off its debts, that doesn’t make commercial sense.

A wave of cash calls following the likes of Trowers, TLT and Hill Dickinson now looks more likely, but the lobbying of the Revenue is unlikely to be over yet.

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