Taking a second look at family partnerships
Taking a second look at family partnerships
FALLING farming profits mean businesses should look carefully at how they trade to minimise tax liabilities, says Carlton Collister, senior tax manager with Grant Thornton.
While in the past it has made a lot of sense, from the tax point of view, to bring younger family members into a partnership, now they may be better off as employees, he says.
Mortgages may be considerably easier and cheaper to obtain as an employee with a regular monthly salary, rather than as a partner with an uncertain income.
"It may also make sense for a younger family member to receive a salary to use their personal allowance (currently £4535 a year), while other partners who have rental or other income are able to benefit from the reduced farming profit, or an increased loss."
Advantages
Further advantages of employee status include the possibility that entitlements to benefits such as Working Families Tax Credit may be easier to assess, and the treatment of benefits in kind, such as mobile phones, may be advantageous.
But there are disadvantages, too. They include higher national insurance costs, the possibility that a further employee may mean that stakeholder pensions must be offered and administered, greater PAYE admin, and the possibility that the way in which profits can be allocated may be reduced.
Other issues
Other issues for partnership businesses include the varying of profit shares. In times of higher profits, these were often shared with family members who had no other income.
"It may now be appropriate to review these arrangements so that losses arise against those family members who have other income against which the losses can be offset," says Mr Collister. *