HMRC internal manual

Enquiry Manual

EM7025 - Partnerships: Nominated, Representative or Reporting Partner: Individual Partner - Share of Profits

A partner’s personal return must include the amount that the partnership statement says is their share of the partnership profit or loss in accordance with section 8 (1B) TMA 1970.

However, there are occasions where individual partners may not agree with the profits allocated to them in the partnership statement. In the first tier tribunal cases, Morgan v HMRC and Self v HMRC TC00046, there was a genuine dispute about profits allocation. The Judge commented that the individual partner should make a return that was correct and complete to the best of their knowledge and belief, which would mean the return could include supplemental information if the individual believed the profits or losses allocated to them in the partnership statement were too low or too high.

The Judge said that, in order to make a correct personal return, a partner who disputes the amount in the partnership statement should

  • include the amount allocated in the partnership statement, and
  • supply any additional information needed to supplement the information in the partnership return.

Following the Morgan and Self cases, we take the view that partners should normally resolve between themselves any dispute about the allocation of profits. But, in exceptional cases, where there is a genuine disagreement that cannot be resolved between the partners, individual partners should

  • enter, as their share of partnership profits, the amount they consider to be correct and
  • advise us that they have done so by making an entry in the white space notes section of the return to show
  • the profits as allocated in the partnership statement,
  • a deduction (or addition) of the disputed amount, and
  • an explanation about why they think the profit allocated to them in the partnership statement is wrong.

If the individual partner does this, then we would not automatically regard the personal return as incorrect if profits, as declared by the individual, were a “net” amount after deducting the disputed amount.

But each case will turn on its facts. If there is a discrepancy between profits as allocated by the partnership and profits as returned by the partner, you may need to open enquiries into the returns in order to establish the correct position in respect of both partnership and partner’s returns. Normal culpability considerations will apply.

SP1/06 gives guidance (in non-culpability cases) on the disclosures a taxpayer should make in order to protect themselves from a discovery assessment under s(29(5) TMA 1970 where

  • figures are uncertain,
  • figures are open to interpretation, or
  • a contrary position to HMRC’s view of the law is taken