Struggling partnerships get help on tax liabilities
HM Revenue & Customs has now announced that the Business Payments Support Service (BPSS)* is to be fully extended to all partnerships with immediate effect. As a result, where members of a partnership cannot pay their tax bills due to cash-flow problems facing the firm, they can now arrange a joint time-to-pay agreement with the tax authorities. Previously, the BPSS largely overlooked the needs of larger partnerships.
Broadly speaking, this development puts cash-strapped law firms, surveyors, architects and other professional practices on a similar footing as a company or an individual taxpayer in terms of negotiating with HMRC on time-to-pay for tax liabilities.
“This development is a major breakthrough for any sizeable practice which might be feeling pressure on cash flow in the current climate. Inevitably, problems and inconsistencies occurred when there were say, 50, 100 or more individual partners, typically spread over different offices each trying to draw up their own arrangement with their local tax inspector. The old system just didn't work,” said Richard Mannion, national tax director at Smith & Williamson, the accountancy and financial services firm.
Solicitors have not been immune from the recession and recent research involving 120 law firms by Smith & Williamson, of which approximately half were from the legal top 100, revealed that 40% of respondents said that managing cash flow was an issue while 55% cited pressure on fees.
“As we come out of the recession, more businesses typically run into problems as cash flow comes under increased pressure. Moreover, with the 31 January tax deadline fast approaching, many firms will need to dig deep to fund the final tax bill for the 2008/09 tax year. So the new extension in the rules has come at just the right time.”
Going forward, the time-to-pay application can be made by an agent or representative who has written authority to act on behalf of the partnership. This is most likely to be the firm’s tax adviser or their financial director. The partners must be able to demonstrate they are unable to pay their individual liability in full but that it can be repaid within 12 months.
The extension to the service can be applied irrespective of the aggregate size of the partners’ tax liabilities although an application on behalf of a large partnership with over £1m of tax at stake will be dealt with by senior officers and the firm should expect to be asked to provide detailed forecasts.
The rules apply to LLPs as well as traditional partnerships. However, if the partnership has a company or partnership as a partner, HMRC expects to deal with each partner separately, as under the previous system.
Despite some confusion over repeat applications, HMRC has confirmed that repeat requests for time to pay can be arranged although taxpayers who are applying for a second extension should expect tougher questioning.
* What is the BPSS?
In November 2008 HMRC announced the launch of the Business Payment Support Service (BPSS). This was introduced in response to the worsening economic position and recognised the impact of the recession on business profitability and, more seriously, the problems faced by many businesses regarding cash flow. This new service was designed to assist all businesses that were unable to pay their tax by providing a fast track response for time to pay (TTP) applications. Unfortunately it did not really cater for larger partnerships because the partnership’s taxable profits are all allocated to the individual partners. As a consequence the partnership itself had no income tax liability and HMRC’s systems operated on the premise that each individual partner should make a separate time to pay application.
For further information:
Richard Mannion, national tax director on 020 7131 4252
Email Richard Mannion
Press Office:
Kate Harrison / Jess Koslow on 020 7131 4228 / 4264
Disclaimer
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Note to editor
Smith & Williamson is an independent professional and financial services group employing around 1,500 people. The group is a leading provider of investment management, financial advisory and accountancy services to private clients, professional practices and mid-to-large corporates. It operates from offices in London, Belfast, Birmingham, Bristol, Dublin, Glasgow, Guildford, Salisbury, Southampton and Worcester. Nexia Smith & Williamson is the audit practice of Smith & Williamson and is an independent company.
Smith & Williamson Limited
Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International
Nexia Smith & Williamson Audit Limited
Registered to carry on audit work and regulated by the Institute of Chartered Accountants in England and Wales for a range of Investment business activities. A member of Nexia International
