Treasury takes aim at murky hedge funds in £3bn tax avoidance crackdown
Jim Armitage is the City editor of The Independent and London Evening Standard group of newspapers. He has been a reporter and editor for more than 20 years and was recently shortlisted for the Press Gazette financial journalist of the year and The Society of Editors financial journalist of the year awards. He contributes news, investigative reports and comment to the Independent titles plus a daily column in the Evening Standard.
Thursday 05 December 2013
The billionaire partners of Mayfair’s shadowy hedge funds are to see their taxes rise by more than £3bn over the next six years under a clampdown on avoidance measures.
Hedge funds are generally structured as limited liability partnerships, with the fund managers treated as self-employed. The arrangement means some of the most profitable business in the country pay no employers’ national insurance, allowing them to make even more money.
Fund managers in LLPs are also allowed to defer paying their income tax to the end of the financial year, allowing them to earn interest before handing it over to the Treasury.
While details will not emerge until next week’s Draft Finance Bill, these salaried partner structures are likely to be banned.
Aidan Sutton, tax adviser at PWC said: “The devil is in the detail on this one. But the huge amount the Treasury is trying to raise clearly indicates they are going to make some swingeing changes. But they need to watch out for collateral damage: many of these arrangements are totally bona fide.”
The move will not only strike out many hedge funds’ arrangements. Although the Treasury press release specifically referred to “alternative investment funds”, it will also capture a range of other industries where the tax avoidance technique is used, from fruit picking to seemingly respectable law firms in which huge numbers of employees are made salaried partners.
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