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HMRC internal manual

Enquiry Manual

HM Revenue & Customs
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Partnerships: Discovery Provisions: Year 1996/97


For the first year of self assessment special transitional rules apply to certain partnerships.

For a partnership business set up and commenced prior to 6 April 1994 and continuing after 5 April 1997 (without a deemed cessation in between) none of the new rules for assessing partners (instead of partnerships) applied until 1997/98. Therefore an assessment for 1996/97 is made on the partnership in respect of the Schedule D, case I/II profits. The partnership profit assessable in 1996/97 will be allocated according to the commercial profit sharing for that year. Where there is a change in the composition of the partnership during 1996/97 the amount assessed will be apportioned pro rata.

But a partnership is still required to file a partnership return if served with a notice under TMA/12AA (2) or (3). All the normal SA provisions will apply to this year’s partnership return, including the right of HMRC to open an enquiry, and subsequently the right to make a discovery amendment to the partnership statement contained in the return.

It is important that a `twin track’ approach is adopted for this year where a partnership assessment exists. Where a discovery position exists you will need to ensure that

  • any discovery amendment is matched by an equivalent discovery assessment and that
  • once the discovery amendment is finalised the discovery assessment is also finalised.

Subject to the conclusion of a contract settlement, the discovery assessment is the only means by which additional liability on trade profits (including professional profits) can be brought into charge.

Where appeals against the discovery amendment and the discovery assessment cannot be settled by agreement you should write to the taxpayer and offer them a review, see ARTG2010. If they do not agree with the conclusion of the review, or if they do not want a review, they can notify their appeal to the tribunal to decide the matter. If they do not accept the review offer or notify their appeal within 30 days of the review offer the appeal is treated as settled by agreement under TMA70/S54 in the amount of the amendment or assessment.

If an appeal is received against the assessment, but not the amendment or vice versa you should invite the taxpayer to make the `missing’ appeal..