Finance (No.2) Bill

Institute of Chartered Accountants in England and Wales (ICAEW) (further submission) (Clause 18 and Schedule 6) (FB17) Clause 18 and Schedule 6: partnerships


1. Please see Appendix 1.


2. This measure introduces new provisions to clarify certain aspects of partnership taxation, including a new mechanism to resolve disputes between partners about the allocation of partnership profits (Sch 6, part 5).


3. We are concerned the draft legislation denies the ability for a partner to refer a dispute about the information in the partnership return to the Tribunal "to the extent that it is in substance about the amount (before sharing) of the partnership’s profits or losses for a period" (see new section 12ABZB, sub-clause 4). We are not clear why a partner’s ability to refer a dispute is restricted in this way.

4. For example, the AB partnership consists of two partners, partner A and partner B, sharing profits and losses equally. Partner A is the nominated partner and is responsible for submitting the partnership tax return. Partner A and B have a disagreement to the extent that a solution cannot be found. As a result, partner A allocates all of the partnerships’ profits to partner B and files the return. Under the current proposals there is no mechanism for partner B to dispute this profit allocation.

5. It is not clear why, in new section 12ABZB, sub-clause 11, a partnership return which has been subject of a referral to the Tribunal cannot be the subject of another referral (unless it is the first referral following an amendment to the return).


6. We suggest the following amendments are made in relation to our concerns noted in paragraphs 3 and 5 above:

· Within Sch 6, para 10, clause 2, remove new sub-clause 12ABZB (4).

· Within Sch 6 para 10, clause 2, amend new sub-clause 12ABZB (11) such that a referral can be made in respect of a partnership return which has been the subject of a previous referral, if it is not related to matters relevant to the previous referral.


7. We are also concerned that, under current law, partners of a partnership are required to confirm that their allocation of partnership profits is correct on their individual tax return. Where there is a dispute about the allocation of profits there is no mechanism to state this on the individual return. The proposed legislation states that "a partnership return is conclusive for tax purposes…" indicating that the individual taxpayer will be bound to report the figures on the partnership return on his/her personal tax return, even if he disputes these.


8. We recommend that further protections need to be given to the position of an individual taxpayer subject to a dispute. HMRC should introduce a box in the tax return that could be ticked to indicate that the taxpayer disputes the partnership figure that has been entered (so the taxpayer doesn’t compromise himself by declaring the tax return is correct and complete). In addition, it should be possible to hold over any tax at stake as a result of the dispute until such a time as it is resolved.


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January 2018


Prepared 10th January 2018