The Finance Act 2014 is introducing changes to the law regarding
the profit allocation in mixed partnerships. The new rules will
operate for periods of account beginning on or after 6 April 2014.
Periods straddling 6 April 2014 will be split into two.
Mixed partnerships are partnerships, including LLPs, where the
partners or members include both individuals and non-individuals
(such as companies and trusts).
In short, the objective of the new legislation is to prevent
what HM Revenue & Customs (HMRC) perceive to be unfair
allocation of profits.
Profit allocations
Where HMRC believe that an excessive amount of the profit has
been allocated to the non-individual, the new legislation provides
for a reallocation of the excessive profits otherwise apportioned
to a non-individual partner, on a 'just and reasonable
basis' to the individual partners. The allocation of profit to
a company is regarded as excessive if one of two conditions is
met.
