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HMRC internal manual

Enquiry Manual

Partnerships: Contract Settlements

SA Years

At the conclusion of an enquiry into a partnership return, you will need to agree the allocation of the omitted profits amongst the various partners for each SA year that has been covered by your enquiry.

You will also need to consider the level of penalty.

  • You will need to think about what abatements EM6050+ are appropriate under the normal headings of Disclosure, Co-operation and Seriousness in respect of any penalties that have been incurred, but see next bullet. Those abatements will be based on an assessment of the conduct of the partnership as a whole. You should seek to agree with the representative partner or any agent acting on behalf of the partnership a net penalty percentage.
  • If the penalty is in respect of inaccuracies in a return or other document relating to a tax period beginning on or after 1 April 2008 and the filing date for the document is on or after 1 April 2009, you will need to think about the penalty reductions that are appropriate. You will find more guidance on this at CH82400+. These reductions will be based on the behaviour leading to the inaccuracy. You should seek to agree the level of penalty with the representative partner or any agent acting on behalf of the partnership.

Once that has been done the case owner of the partnership enquiry will need to agree with any other offices involved who should seek to negotiate a contract settlement with each partner. Such a settlement should incorporate tax and NIC on the agreed omissions together with any interest, surcharge or penalties arising thereon and those penalties will be at the level fixed by the partnership district.

Where responsibility for dealing with some or all aspects of the return of a partner dealt with in another office has been taken over by the partnership office during the enquiry, that office may be best placed to conduct the settlement negotiations. Otherwise, details of the agreed penalty loading applying to the members of the partnership will need to be notified to the other offices involved in order that they can undertake the settlement negotiations.

In any case where there is a separate enquiry into a partner’s personal return, the partnership liabilities can be incorporated into a composite contract settlement on that partner. But the level of penalty agreed for the partnership will only apply to the partnership income. The penalty abatements will need to be applied separately to the non-partnership items.

Some partners may discuss a contract settlement whereas others within the same partnership are reluctant to accept the figures agreed on their behalf. You will need to take formal action, including penalty determinations. In that situation that partner will only be able to lodge an appeal against the penalty determination if the representative partner is persuaded to appeal on their behalf.

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

Pre SA Years

All partnership income is now assessable on the individual partners.

Exceptionally however for pre SA years before 1997-98, that involved ‘old’ partnerships, see EM7130, the income is assessable on the partnership.

In any case where the enquiry covers both SA and these earlier years it will be the responsibility of whoever in HMRC is responsible for checking the partnership’s liability for these specific years to seek to make a partnership contract settlement, but only in respect of those years.