Thu, 06/03/2014 - 06:14
BDO is warning fund managers about five things they need to do now to make sure they comply with new tax rules on LLP partnerships which come into force on 6 April.
The change in tax law is expected to hit hard many of London's flagship businesses, including hedge fund managers and private equity firms - many of whom are still smarting from the costs of implementing new European regulation, such as AIFMD and UCITS V.
Kevin Cummings, partner in the financial services team at BDO says: “The tax affairs of London fund managers remain in disarray after a bizarre series of HMRC fudges. With only one month to go before London asset management firms are forced to comply with, what seems to many, as ill-planned and arbitrary new tax rules for UK partnerships, there are a number of things that fund managers need to do now to protect themselves against another wave of burdensome business taxes.”
The top five things fund managers need to do now to prepare:
1. Re-evaluate how successful portfolio manager partners are paid – profit splits by reference to desk or divisional performance will attract new National Insurance taxes under the new rules
2. If the firm is US or Swiss-parented, London-based managers that are paid on a “cost plus” basis will need to restructure their affairs to avoid all the firm’s partners being treated as employees and subject to harsher National Insurance taxation
3. Re-consider the firm’s governance and long-term capital requirements – even established, senior partners will be treated as employees if they are not regarded by HMRC as having “significant influence” across the firm, or do not have significant amounts of capital at risk in the business
4. Approach the UK tax authorities for certainty about the firm’s tax affairs after 6 April, given that back taxes and penalties will be suffered if managers make the wrong call now
5. Re-consider London as the domicile of the manager, or consider changing the legal form of the business from a partnership to a company to increase tax and business certainty.
The changes to the way partnerships are taxed are due to be implemented by HMRC on 6 April. They will apply to all LLPs in the UK.
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