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Glasgow
+44 (0)141 221 2984

Edinburgh
+44 (0)131 225 6366

Stirling
+44 (0)1786 451745

Dumbarton
+44 (0)1389 765238

Hamilton
+44 (0)1698 459444

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Blog

Partnership tax filing - lessons from the tax tribunal

If you’re in a partnership, who is responsible for filing the partnership tax return? A recent First Tier Tax Tribunal (FTT) case has highlighted worrying issues involving HMRC’s practice, but also the need for more clarity to be given.

Mrs L is a partner in a two-partner business. HMRC had charged her penalties for failure to file a partnership tax return for the 2015/16 tax year. The other partner, Mr F, did not receive any penalty notices. HMRC said that Mrs L was the “representative partner” for the business who was required under statute to deliver the relevant tax return.

There are two definitions in the relevant legislation as to how a return can be notified:

  • A notice to “the partners” already identified to file; or
  • A notice to “any partners”.

Since HMRC sent the notices to the business’s address rather than the personal address of Mrs L, the judge in the case felt the notice was given under the second definition. That is, any partner at the business could have fulfilled the requirement.

More pertinently for HMRC, the judge cancelled the penalty orders after reviewing what he believed to be an inadequate train of evidence from the Revenue, who had not only failed to keep adequate records of what had been sent and to whom, but had also sent the wrong letter to Mrs L and not pursued the other partner at any time. This is why it is always worth speaking to a specialist before paying a penalty to make sure it is due and HMRC were correct to issue.

While the individuals and business in this case were lucky to come before a rigorous judge, partners need to be aware of the responsibilities each must ensure they comply with on the tax filing rules. One of the issues raised in the case was why one partner had been pursued over another. It transpired that Mrs L was already registered for self-assessment and had a unique taxpayer reference (UTR) number, while her partner did not. This meant it was simpler for HMRC to find and fine her.

A partnership return must be filed, regardless of whose name is on the notices. If a named partner is unable to comply, for whatever reason, the notice should not be set aside until they are able to deal with it. HMRC should have pursued both partners for the return in this case and should have been able to produce the proper notifications when required.

The simplest way to avoid becoming embroiled with either HMRC or tribunals, however, is to be clear within your partnership about how to manage such events and who the responsility lies with. We’re happy to discuss your options with you, please get in touch if you have any queries.

VAT's Christmas!

As 2018 draws to an end and the New Year approaches, it seems like a good time to consider what is happening in the ever-changing world of VAT.


Review of 2018
Although there wasn’t much in the way of significant legislation introduced in 2018, the UK and European courts were as busy as ever delivering decisions on a wide range of VAT issues.

As always land and property was a popular and important area and we saw a common sense decision reached in Scotland whereby the Court of Session ruled in the case of Sibcas that the supply of temporary modular accommodation was not a supply of immovable property, meaning that the taxpayer was correct to treat their supplies as subject to the standard rate of VAT and not an exempt supply of land. There was disappointment for Wakefield College as the Court of Appeal VAT denied zero-rating on the construction of a new building on the basis that (inter alia) the level of fees paid by subsidised students was at a significant level and as it was not means tested meant that the college was carrying out business activities.

In other areas, Ryanair went to the European court and won! The CJEU ruled that they could recover VAT incurred on costs relating to its failed takeover bid of Air Lingus (due to competition rules) as there was a clear intention to provide management services after acquisition. There was a painful decision for DPAS Ltd – a company providing payment plans for dental treatment - as the CJEU concluded that their services did not fall within the VAT exemption for payment processing. However, there was a cheerful decision for Character World Ltd as the First-Tier Tribunal ruled that their licenced product described as “fleece blankets” qualified as zero-rated children’s clothing.


Looking forward to 2019?
We will see Making Tax Digital becoming mandatory for most businesses in April. The VAT reverse charge in the construction industry will also be introduced on 1 October 2019. This measure is designed to reduce VAT fraud, although it could result in accounting and cash flow issues in the short term for many traders.

There were also some surprising VAT announcements in the recent budget. Firstly, there was an early Christmas present for smaller businesses as it was confirmed that the VAT registration threshold will remain frozen for two years. Micro-traders supplying digital services to EU consumers will also welcome the introduction from 1 January 2019 of a new digital supplies threshold. It means that where the total annual value of B2C digital supplies to all EU countries is below £8,818, then the sales will be dealt with under UK VAT rules (avoiding an immediate requirement to account for VAT across the EU).

For businesses selling vouchers there will be significant changes from 1 January 2019. VAT will now be due at the point of sale on vouchers where the VAT rate of the goods or services is known (a single purpose voucher). Where the rate of VAT is not known at the time of issue then VAT will be accounted for when the voucher is redeemed (a multi-purpose voucher).

The way surrounding how VAT should be accounted for on ‘unfulfilled supplies’ will change from 1 March 2019, meaning a potentially significant change for businesses that receive deposits or prepayments. HMRC’s new policy means that where VAT has been accounted for on a prepayment and the customer decides not to take up the goods or services, then the payment made will remain subject to VAT and the supplier will no longer be allowed to make a VAT adjustment– unless the payment made is actually refunded to the customer.

The scope of VAT Grouping will be extended to allow non-corporate entities, such as sole-traders and partnerships to join a VAT group. Any decision to join or form a VAT Group should be taken carefully as there are pros and cons to consider. There will also be a refinement to the definition of a “bought in service” within VAT Grouping legislation, as an anti-avoidance measure.

This update highlights some of the main changes in the area of VAT – all this and no mention of the ‘Brexit’ word… Ho-ho-ho!

Employee Ownership Trusts - Through the Looking Glass

A lot has been written about the advantages of employee ownership trusts where the focus has been on the capital gains tax advantages to the vendor in not paying any capital gains tax at all.

To a lesser extent, mention has been made of employees of the company being able to receive tax free bonuses from the company each year of up to £3,600.

There are much wider issues here however, other than tax.

When ownership changes, it is almost inevitable that there will be a change in culture or a change in procedures which may not be for the better.  Employees may become unsettled and either move on or cause unrest among their colleagues. 

Where the ownership changes to that of a trust for the benefit of all employees then there should be a very much lower risk of this happening and a togetherness of purpose.  By all accounts, morale within the John Lewis Partnership, where employees are “partners” is high with the business having a good reputation and doing well compared to some other major national retailers.

Many businesses are sold to new owners who are geographically distant, whether in another part of the UK or abroad.  This can lead to a transfer of work abroad and, at the extreme, complete closure of the business which has been acquired, in its traditional location, with a loss of jobs.  Do you remember Terrys of York, the renowned chocolate manufacturer?  The company was bought by Kraft and the York factory closed about ten years ago.  Would a Terrys of York, owned by an Employee Ownership Trust still be manufacturing chocolate in York today?  Sadly, we will never know, but they did make lovely chocolates there.

If you are interested in finding out more about Employee Share Ownership please visit our web page here.

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