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HMRC Makes Ruling On Sleeping And Inactive Partner Tax

Friday, 19 April 2013   (0 Comments)
Posted by: Source: Amanda Banks
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Source: Amanda Banks

Tax accountants have expressed surprise at a recent HMRC announcement that it now considers Sleeping and inactive Limited Partners to be liable to pay Class 2 National Insurance contributions as "gainfully employed" self-employed earners and Class 4 contributions in respect of their taxable profits.

HMRC's new view represents a change from its previous opinion. It is based on a revised understanding of the Social Security Contributions and Benefits Act 1992, which, following the Partnership Act 1890, defines partnership as "the relation which subsists between persons carrying on a business in common with a view of profit." HMRC observes that the 1992 Act does not require the partners to be active.

However, HMRC has clarified that it will not be seeking back-payments from before tax year 2013-14.

George Lovell, a tax partner with DTE Business Advisers, commented that: "It's safe to say that we were surprised by this announcement as we were not aware of any previous discussions on the subject." He advised those affected to "seek exemption according to their individual circumstances or arrange to pay their NICs from now."

According to HMRC, the liability will apply "unless a Sleeping or inactive Limited Partner is either under 16, over pension age, is granted the Small Earnings Exception, is a married woman or widow with reduced liability, or claims deferment on account of other employments."



Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

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