Mixed Membership Partnerships: A Salient Reminder

Two differently constituted First-tier tribunals (FTTs) recently decided that amounts allocated to a corporate member of a limited liability partnership (LLP) were individually subject to income tax under the "miscellaneous income" provisions in Income Tax (Trading and Other Income) 2005 (ITTOIA 2005) section 687. While these historical remuneration arrangements have subsequently been targeted by the mixed membership partnership rules in ITTOIA 2005 sections 850C-850E (and the taxation of fund managers has been the subject of wider taxation reform), the FTT decisions in Odey Asset Management LLP and others v HMRC [2021] UKFTT 0031 (TC) and HFFX LLP and others and Badzyan v HMRC [2021] UKFFTT 0036 (TC) serve as a salient reminder that HMRC continues to look closely at remuneration arrangements in the funds industry, including on an historical basis and notwithstanding any possible regulatory and commercial justifications.