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HMRC internal manual

VAT Registration

Entity to be registered: partnerships: changes in the composition of the partnership

The effects of the ‘no account’ clause in section 45(1) of the VAT Act 1994 are that, generally speaking, once a partnership is registered, no account is taken of any subsequent change in its members. This applies whether the registration is in the name of the firm or in the names of the individual partners. However, where a firm is registered in the names of the individual partners, an amendment should be made in the registration to delete or add the name of the in-coming or out-going partner as appropriate.

Changes in the composition of a partnership must be notified under the VAT Act 1994, section 45(2) and the Partnership Act 1890, section 36. Until we are notified that a partner has ceased to be a partner in a firm, that person is liable for the debts and obligations of the firm in the same way as the rest of the partners. Tribunal case T.A.Z. Hussein and M. Asim t/a Pressing Dry Cleaners LON/02/1079 VTD 18341 held that, for the purposes of the above legislation, verbal notification will suffice.

Unless the agreement provides otherwise, a partnership is automatically dissolved where:

  • one partner gives notice to the other or others of his intention to dissolve the partnership
  • one partner dies
  • one partner goes bankrupt, or
  • (under the Partnership Act 1890, section 35) a Court Order is issued because:
    • a partner becomes incapacitated

    • is guilty of misconduct

    • is guilty of breach of the partnership agreement, or

    • the partnership can only be carried on at a loss.

If the remaining partners continue to trade without a break, a new partnership is created. This type of dissolution of a partnership is known as a ‘technical dissolution’.

In such circumstances, if it were not for VAT Act 1994, section 45(1), we should have to call for a VAT 68 from the trader or carry out a deregistration and re-registration every time a partner left the firm, or a new partner joined.

The ‘no account clause’ quite simply means that we treat the partnership as if it were not dissolved when there is a change in the composition of that partnership. This provision is not a discretionary one. It states that, ‘no account shall be taken of any change in the partnership.’