Your guide to the Finance Act 2018 – changes affecting partnerships

Your guide to the Finance Act 2018 changes affecting partnerships

The Finance Act 2018, which received Royal Assent on 15th March 2018 and is now an Act of Parliament, enacts several changes affecting the taxation of partnerships, most of which apply for the 2018-19 tax year onwards. As a leading provider of accounting services to more than 1,200 loyal clients, we work with professionals from all walks of life, including sole traders, businesses and the partnerships that the newly formed legislation impacts.

In this blog post, we offer an essential guide to the Finance Act 2018 and what changes those in partnerships can expect as a result.

Who’s affected?

The changes stipulated by the Finance Act 2018 will be relevant to both forms of partnerships, general and limited. The changes will also affect Limited Liability Partnerships (LLPs) carrying on business with a view to profit and foreign entities classified as partnerships for UK tax purposes.

To date partnerships, particularly those classed as general partnerships, have been a great way to do business, unlocking a number of advantages for those involved. As well as being easy to establish, partnerships do not have to pay income tax. Funding and growth opportunities also tend to be greater within partnerships, with the business or businesses at their centre benefiting from an increased ability to raise funds; a wider pool of experience, knowledge and contacts; and improved, multi-owner management. The newly formed Act, which is smaller than those receiving Royal Assent in recent years, will mean a number of changes for those in partnership.

What does this mean for you?

Although HM Revenue & Customs (HMRC) believes there will be little impact for most partnerships, it will be important for partnership structures to review the rules and assess their likely impact. Partnership taxation is the main focus of the Act, and the legislation brought into force aims to provide clarity regarding certain aspects of how partnerships are taxed. The Act will also see the amendment of corporate interest restriction (CIR) rules, whilst indexation allowance is also not permitted under the new rules.

With the Finance Act 2018, the Research and Development Expenditure Credit (RDEC), an incentive designed to encourage larger firms to invest in research and development and in turn reduce their tax bills, will also increase. The rate of RDEC will rise to 12%.

How can I get support?

As with any new piece of legislation, getting to grips with what it means for your business is important. Our experienced and knowledgeable accountants are on hand to assist with any queries regarding the changes affecting partnerships under the Finance Act 2018.