This is a useful article on the legislative changes to partnership tax. One area that could provide firms with a headache is the section headed ‘Allocation of profits or losses', which states that taxable profits will now be allocated in the same proportion as accounting profits. Many firms do not currently follow this policy, as private expenses are often allocated to specific partners rather than being split between the partner pool. In addition, partners who are on a fixed profit share arrangement will not normally share in the tax adjusted profits of the firm, as this is often allocated to those partners with a variable profit share. Therefore, firms who operate these arrangements (and there are many) will have to consider the implications of this new rule.
The intention is that this draft legislation, which emerged from a consultation process that began in August 2016, will be included in FA 2018. The consultation was heralded as covering areas ‘where the government has identified that the tax rules may be seen as unclear or produce an inappropriate outcome’. It was intended to ensure the rules ‘fit with modern commercial practice’.