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HMRC internal manual

Debt Management and Banking Manual

HM Revenue & Customs
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Pre-enforcement: consider the defaulter: partnerships

Joint liability or several liability

In England, Wales and Northern Ireland, partners who carry on business together are jointly liable for the debts incurred by the partnership while they are a partner. That is, they are equally responsible, under section 9 of the Partnership Act 1890, for payment of the whole of the debt (but see Partnerships in Self Assessment below).

They are not severally liable; which would mean that each partner was responsible for the whole debt.

You must take proceedings for any partnership debt against all members of the partnership. This applies even if one or more partners have made a payment against the partnership debt.

If taking distraint action, you can distrain only on partnership assets.

In county court proceedings, you must claim against all partners. After judgment has been obtained the partners become severally liable and you can proceed against one or all of them.

In Scotland only, partners are both jointly and severally liable.

Schedule D tax on Partnerships for 1995-96 and prior

Where two or more persons carried on a business jointly, a single assessment was made in respect of the partnership income. Later (more recent) issued assessments are issued by Compliance because of the extended time limits allowed through discovery provisions. Treatment for the transition from Schedule D into Self Assessment is explained in SAM20060.

Where a pre-6 April 1994 partnership existed and is assessed for 1995-96 or earlier, a ‘unique’ SA record is used to allow for the payment and collection of the tax from the partnership. This is set up using type ‘individual’ but in the name of the partnership or partners.

Partnerships in Self Assessment - 1996-97 to date

Under the Self Assessment provisions, there is no partnership liability and partners are individually responsible for any tax due on their share of the partnerships profits. You cannot recover the debt from the other partners, whatever the reason for non-payment.

All matters relating to the calculation of partnership income, profit / gains or loss are dealt with centrally, either in a partnership assessment or a partnership tax return.

Limited partnerships - the Limited Partnerships Act 1907

A limited partnership consists of:

  • one or more persons called general partners, who are liable for all debts and obligations of the firm
  • one or more persons called limited partners, who contribute a sum, or sums, of money as capital, or property valued at a stated amount.

It is governed by the Limited Partnership Act 1907, which is reproduced in BIM72515. A limited partnership must register with the Registrar of Limited Partnerships in London or Edinburgh as appropriate. Failure to register deprives it of its limited liability.

The limited partner may not bind the firm and may not take part in the management of the firm’s business. If they do, they lose their limited liability.

Limited partners are not liable for the debts and obligations of the firm beyond the amount they have contributed, plus any undrawn profits.

If you are considering enforcement proceedings against a partnership that claims to be absolved from liability as a result of the Limited Partnership Act 1907, send the case to the Enforcement Technical Team (Debt Management Bradford).

Limited Liability Partnerships

The Limited Liability Partnership Act 2000 (LLP Act) introduced a new corporate business entity to Great Britain - the Limited Liability Partnership (LLP). The Act took effect from 6 April 2001. It applies in England, Scotland and Wales but not to Northern Ireland. LLPs have been developed to combine the organisational flexibility of partnerships with the benefit of limited liability for their members.

LLPs are in commercial law regarded as ‘bodies corporate’ with legal personality separate from their members and will be subject to aspects of company law. To exist, a LLP must be registered. Unlike limited partners in a Limited Partnership registered under the Limited Partnership Act 1907 the members of a LLP may take part in the day to day management of the business. The liability of a member of a LLP for the LLP’s debts is restricted to their capital contribution unless they are negligent in relation to the work carried out for a client.

A LLP must have at least 2 registered members. And where a person becomes a member of a LLP or ceases to be a member of a LLP the LLP must give notice of this to the Registrar of Companies within 14 days.

Partnership contains a minor or limited company

You should send the case to the Enforcement Technical Team (Debt Management Bradford) for authority to take enforcement proceedings where one or more of the members of a partnership is:

  • a minor, or
  • a limited company.

Applications for payment in ceased partnership cases

Applications for payment due from a partnership in respect of employers’ liabilities or Schedule D tax should be addressed initially to the partnership, but any demand that threatens proceedings should be issued to each partner. Collection should then follow the normal route.

Enforcement in Schedule D tax cases

In countries except Scotland, distraint must be levied only on the goods of the partnership and not on those of the individual partners.

In England and Wales, do not take county court proceedings to recover overdue Schedule D amounts until a separate final warning letter has been issued to every partner. This is particularly relevant where the partnership has ceased

Enforcement against current employers

For either in-year or end-of-year underpayments where the partnership is still a live employer, applications for payment will have been made to the partnership automatically. Where you are taking county court proceedings using the County Court Bulk Centre, check that you have entered the name and address of each partner on the ‘Other addresses’ tab of DESIGNATORY DETAILS and in the correct format. If any of the partner’s addresses are RLS you will not be able to issue a claim via the interface.

Responsibility for payment

If a partner dies, becomes bankrupt or is otherwise unable to pay

If a partner dies, becomes bankrupt or is otherwise unable to pay, or goes abroad, responsibility for payment of partnership debts remains with the surviving partners (sometimes called the ‘standing-up’ partners) as long as any one of them one remains. You should always continue action against the surviving partners.

If the partnership / a partner becomes bankrupt

Insolvent Partnerships

Do not start proceedings if a winding up order has been made against an insolvent partnership as if it were an unregistered company. (Individual partners’ debts can still be recovered from the individuals). If you feel there is a likelihood of payment from the sole bankruptcy, consider lodging a claim for the partnership debt, but whether you do so or not, continue collection action against the standing-up partner.

Last surviving partner

If the last remaining partner

  • goes unknown, use the RLS procedures
  • is adjudged bankrupt, lodge a claim for the partnership debts in the bankruptcy. The partnership debt ranks as ‘deferred’
  • dies, lodge a claim for the partnership debts in their estate. The estates of any partners who died earlier are not liable. However if you find that the estate has been distributed, or no executor has been appointed, or there is no estate, and the amount involved exceeds £10,000, refer the case to the Enforcement Technical Team (Debt Management Bradford) or in Scotland, to EIS Edinburgh.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

  • (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
  • (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
  • (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
  • (This content has been withheld because of exemptions in the Freedom of Information Act 2000)