UK Government to investigate Scottish limited partnerships

Houses of Parliament - Image credit: PA Images

The UK Government has announced it is to hold a review of limited partnerships following allegations that some limited partnerships in Scotland are being used for criminal purposes.

It will be gathering evidence on the use of limited partnerships across the UK, but with a particular focus on those registered in Scotland.

A limited partnership is a type of business made up of a number of partners, who can be either people or other businesses.

But unlike those set up in England, Wales and Northern Ireland, Scottish limited partnerships (SLPs) have a ‘legal personality’, which means they can hold assets, borrow money and enter into contracts.

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SLPs also benefit from anonymous ownership and lenient reporting – SLPs that do not operate in the UK do not have to pay tax in the UK or file accounts.

While SLPs can be used for legitimate business purposes such as private equity and property, it has been suggested that some are linked to international criminal networks and are being used for, for example, child pornography, arms deals, money laundering as well as a recent $1bn digital bootlegging case in the USA.

The International Monetary Fund has warned that SLPs pose a serious threat to combatting organised crime and money laundering.

The number of limited partnerships registered in Scotland increased by 237 per cent in the four years from 2011/12 to 2015/16, with around 25,000 SLPs currently registered at Companies House.

In comparison, registrations for limited partnerships in England, Wales and Northern Ireland increased by only 42 per cent in the same period.

The charity Oxfam has been campaigning for transparency on tax, particularly in relation to SLPs, and the issue has been raised in the Scottish Parliament and by SNP MPs at Westminster.

The Scottish Government has also called for a review into their use, as powers over SLPs remain reserved to Westminster.

Finance secretary Derek Mackay wrote to the UK business secretary, Greg Clark, in August asking for a change in the law to ensure SLPs cannot be used for criminal activity.

Businesses and other interested parties are being asked to take part in the UK Government’s call for evidence to help it understand what has led to the steep increase in the number of limited partnerships being set up and what they are being used for.

Secretary of State for Scotland David Mundell said: “It is right the UK government launches this call for evidence into the use of Scottish limited partnerships for possible criminal activity.

“Work by campaign groups and a series of media reports have highlighted growing concerns which require to be taken very seriously.

“I would urge businesses and organisations in Scotland to share their views. It is important we are able to gather as much information as we can.”

The SNP attempted to introduce a new clause into the Finance Bill in August, calling on the UK government to investigate SLPs, but the amendment was voted down.

Commenting on the announcement, Roger Mullin MP said: “Having previously rejected and voted against our calls for an investigation, this change of heart from the UK government is a step in the right direction, and a victory for the SNP and all those who have campaigned on this issue.

“We know that the links between SLPs and criminality pose a threat to combatting organised crime.

“Understanding the scope, scale and extent of the criminal links with SLPs is the only way in which we can move forward to a practical and effective solution.

“While we are pleased with today's development, it is merely the first step.

“The SNP will submit a series of new clauses to the upcoming Criminal Finance Bill, which will aim to hold the UK Government to account on their commitment to shine light into this murky world, and deliver on their promise.”

The UK Government said that the evidence will help inform whether further action is needed to prevent limited partnerships being used as a front for criminal activities, while still ensuring they continue to be “an efficient and flexible vehicle for legitimate business use.”