The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:
The use of corporate entities alongside individuals as partners in partnership or LLP structures has become increasingly common. This is particularly true following the divergence between corporation tax and income tax rates.
Planning opportunities arise in the context of both structuring new ventures and restructuring existing arrangements, although restructuring can be more difficult given the amount of anti-avoidance arrangements.
In all cases, it will be necessary to justify any planning arrangements from a commercial perspective. In this respect, businesses should consider structuring as early as possible when considering a new business venture.
Targeted anti-avoidance rules apply to partnerships with mixed memberships, ie both individual and corporate partners. These rules aim to counteract situations where excessive amounts of profit are allocated to corporate members or excessive losses are allocated to individual partners.
See the Partnership anti-avoidance provisions guidance note for further details.
Such hybrid structures provide flexibility in terms of how individuals are remunerated (either by way of partnership profit share, salary / bonus payments or dividends) and the timing of any cash extraction from the business.
Cash flow benefits can arise from the deferral of payment of tax, particularly where there is a requirement for cash to be left in the business to fund working capital or future capital injections. There will, however, be a further charge to tax on the eventual extraction of profits. Such a structure can also provide additional opportunities to incentivise key employees.
However, as mentioned above, care will need to be taken not to fall foul of the targeted anti-avoidance legislation relating to partnerships with non-individual members, such as corporates, to combat perceived aggressive tax avoidance within the operation of partnership structures. See the Partnership anti-avoidance provisions guidance note for further details.
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