Budget 2020: LLPs ‘without view to profit’ face HMRC probes

The government is clamping down on abuse of limited liability partnerships (LLPs) which claim to be operating for profit, but are actually not, clarifying HMRC powers to amend their tax returns, reports Sara White

The rules have always been in place in a mixture of different Acts, but now the government is making a determined effort to curb abuse of the rules with the introduction of new legislation in Finance Bill 2020.

This change has immediate effect and can used as a retrospective tool by HMRC, when reviewing past tax returns.

In circumstances where an LLP has submitted an LLP partnership return on the basis of operating ‘with a view to profit’ and is then found to be operating ‘without a view to profit’, HMRC can amend the LLP members’ returns based on the LLP return as originally submitted.

The HMRC policy paper states that the measure ‘is introduced with retrospective and prospective effect but does not introduce any additional obligations or liabilities for customers’.

Legislation will be introduced in Finance Bill 2020 with retrospective and future effect to underline that LLPs are expected to follow the rules.

Current law relating to the making and delivery of LLP and general partnership tax returns is set out in s12AA Taxes Management Act 1970, s863 Income Tax (Trading and Other Income) Act 2005, s1273 Corporation Tax Act 2009 and s1(1) Partnership Act 1890.

HMRC policy paper, Tax treatment of LLP returns

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