VAT Liability and Partnership Deeds

From 1 May 2007 partnerships have to register for VAT if they exceed or are likely to exceed the VAT registration threshold, which is currently £67,000, in respect of certain classes of services. Recent information from HMCE appears to indicate that where a VAT liability arises in respect of such services, it should be made clear whether the VAT liability falls on either the partnership or the individual partner providing the services. If this is not clarified in the Partnership Deed it appears that HMCE will deem the liability to fall on the partnership. This may result in the practice reaching the level where registration for VAT payments is necessary, which would not otherwise have been the case.

It is of course a matter for the practice as a whole as to how liabilities should fall but Ros Parkin – rap@lockharts.co.uk will be happy to advise on changes that may be necessary to practice Parntership Deeds.

Partnership Issues

While it is the wish of every partnership that things run smoothly, there will always be occasions when circumstances pose problems for your business, its partners and its employees. Whether you are an existing partnership, or contemplating the formation of a new firm, it is essential that you take appropriate advice as these circumstances dictate.

Whether a problem arises out of a dispute over the nature or interpretation of your partnership agreement, your employee's rights and obligations, a matter relating to professional discipline, or a combination of several issues, it is crucial that you deal with it effectively and efficiently.

Lockharts have considerable experience and expertise in acting for partnerships and are able to offer legal advice in the following key areas.

Partnership law

Drafting of partnership agreements for partnerships or LLPs,
Fixed price partnership agreement assessment,
Advising on the meaning and enforceability of clauses in existing Deeds,
Developments in the law such as the extension of the applicability of the Age Discrimination legislation to partnerships.

Partnership Disputes

Negotiations and settlements when Partners retire voluntarily or compulsory,
Advice on internal partnership disputes, dissolutions and expulsion of partners,
Acting on behalf of partnerships and individual partners in ADR, mediation, arbitration and Court proceedings,
Advising on the enforceability of restrictive covenants, including acting to obtain injunction applications.

Employment law

Drafting of employment contracts, staff handbooks and employment policies,
Advice on unfair dismissal, disciplinary and grievance procedures, redundancy, discrimination and business transfers (TUPE),
Advice on dispute resolution and compromise Agreements,
Representation and advice on claims before the employment tribunal,
More information.

Disciplinary and Fitness to Practise Issues

Legal assistance to practitioners who are being or may be investigated or charged with a disciplinary offence by their professional or regulatory body,
Preliminary advice for practitioners who have been contacted by their regulatory body,
Representation for practitioners who are being investigated or subject to disciplinary hearings before a panel or Tribunal,
Combined experience of working almost exclusively with professional practitioners with expertise in partnership law, regulatory law and litigation,
Membership of the Association of Regulatory and Disciplinary Solicitors.

Property law

Commercial business sales and acquisitions,
Leases and premises development,
Re-mortgaging and co-ownership,
More information.

Intellectual property

Advice on trade marks,
Registrations at home and abroad,
Passing-off and infringement,
Assigning and licensing trademarks,
Advice on internet domain names,
More information.

Whether or not your partnership issue appears to come under any of the above, please do contact our Head of Partnership Rosalind Parkin who will be happy to discuss your concerns with you.

Partnership Issues

Changes in Capital Gains Tax (CGT)

Chancellor of the Exchequer Alistair Darling announced in the pre-Budget report that the rules on capital gains tax (CGT) will change from 6 April 2008. The current system of taper relief allows investors to pay just 10% on investments held for two years. In place of the taper relief, Mr Darling is introducing a new flat rate of 18%. He has intended to raise additional taxation to target private equity investors, who have been described as ‘paying less tax then their cleaners’. The details of how this is to be done were not precisely spelled out.

The net effect will be to set back the growth of the economy over coming years, by discouraging longer term investment and risk-taking. This will hit all businesses in the UK and reduce the tendency for entrepreneurs to start new businesses. The previous arrangements encouraged entrepreneurs to take higher risk and the tax system rewarded them accordingly. The changes lead to expectations that many business owners will sell up in the period up to 5 April 2008, as people make sales to avoid much larger tax bills.

This compares with the CGT position on disposal of personal assets. The current effective rate is 24%. With the flat rate of 18%, general investors in shares and those with buy-to-let or second properties will find their position improved. No holding period will be required to benefit from this new rate.

Despite the new flat rate in CGT, Mr Darling said that the UK would remain “one of the most competitive single rates of any major economy”.

Inheritance Tax - reminder as to use of Annual Exemption

Introduction

With the end of the present (2006-07) tax year on the horizon – 5 April 2007; clients are reminded, if they have not utilised the annual exemption from tax year 2005-06 prior to 5 April 2007, they will lose the benefit of that year’s exemption.

Workings

The annual exemption of £3000 only applies to transfers made before death and runs in tax years -6 April to the following 5 April. The transfer is available in addition to other exemptions; viz small gifts, wedding gifts, spouse / civil partner exemption.

To the extent that the annual exemption is not used in a particular tax year the unused part can be carried forward to the next tax year but no longer. As is often the case there are practical traps for the unwary to avoid!

To ensure that the carry forward annual exemption is limited for one tax year only, the annual exemption for the current year must be used firstly and, only after that year’s exemption has been used, can any amount be brought forward from the previous tax year.

Where more than one chargeable transfer is made in a tax year, the annual exemption must be allocated to the first chargeable transfer made in that tax year. This includes transfers that would otherwise be deemed to be a Potentially Exempt Transfer.

Amount available to each spouse or civil partner

The maximum amount available to each spouse or civil partner is computed as:

Tax year to 5 April 2007: £3000.00 each spouse / civil partner

Tax year to 5 April 2006: £3000.00* each spouse / civil partner

* will be excluded if not utilised by 5 April 2007.

Where parents are gifting cheques to (adult) children, it is the date the cheque cleared through the donees bank account that is operative; those parents/ donors with (adult) children that are “slow” to pay in such cheques as gifts should be encouraged to do so with all speed if the 5 April is fast approaching!

Comment

Whilst £3000 per donor is modest (the amount is unchanged since the 1984 Inheritance Tax Act); nevertheless with a structured approach – spouses can pass £6000.00 in total per annum –over ten years this would be £60,000 gifted to a succeeding generation. If that capital had remained in the ownership of the donors it, together with ten years of potential investment growth, could attract a 40% liability on the subsequent demise of the donor.

In similar terms if parents are able to “educate” their adult offspring as to the merits (say) of a regular savings plan - £6000 -00 per annum applied into such investment or savings plans, may generate a useful sum after ten years to assist their adult children in funding a deposit towards property purchase.

If you have any questions do not hesitate to contact Andrew Murdoch at Lockharts Solicitors for further advice: am@lockharts.co.uk

12-02-07