Question proposed, That the clause stand part of the Bill.

Clause 12 provides a power to modify the application of the Social Security Contributions and Benefits Act 1992 and its Northern Ireland equivalent in relation to class 4 national insurance contributions of individual partners who are members of FCA-related partnerships that apply the alternative investment fund managers directive requirements.

Under existing partnership tax rules, tax is charged to profits as they are earned, rather than when they are received. An unfunded tax charge can therefore arise to profits that are allocated to an individual partner of an AIFM partnership and then deferred in line with the regulatory requirements of the alternative investment fund managers directive. That is because the partner cannot access the deferred profits in the year when they arise.

The Government are committed to addressing the tax issue by introducing a new statutory mechanism, subject to parliamentary approval. The mechanism is designed in such a way that it will not compromise the Government’s objective for the partnerships review, which is to achieve fairer taxation by stopping tax planning through the use of mixed membership partnerships that include both individual and corporate members.

The new power introduced under the clause will support the introduction of the mechanism and will be used to change the relevant national insurance contributions legislation by regulation, once the related Finance Bill 2014 becomes law. I therefore commend the clause to the Committee.

Question put and agreed to.

Clause 12 accordingly ordered to stand part of the Bill.