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HMRC internal manual

VAT Registration

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HM Revenue & Customs
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The effects of death, insolvency and incapacity on registration: incapacity of partners

Incapacity and the Partnership Act

A partnership is not automatically dissolved in the event that one of the partners should become incapacitated. However, under the Partnership Act, section 35(a), a partner may apply to the Courts for dissolution of the partnership if he can show that one of the partners is of permanently unsound mind. Such Court Orders will normally only be given when it can be shown that the partner is incapable of performing his part of the partnership contract.

Where a partner has applied for, and been granted, a Court Order dissolving the partnership, you should allow any partnership which is formed to carry on the business subsequent to the Court Order to continue to trade under its existing registration number (in accordance with the VAT Act 1994, section 45(1)). You should make amendments to the name, where necessary, using a VAT 12 and amend the VAT 2.

Regulation 9 and temporary incapacity

In the unlikely event that it is thought that the incapacity of a partner is only going to be temporary - and there are two or more partners continuing to trade - you should allow the partnership to continue to account for tax under its existing number (under the VAT Act 1994, section 45(1)), making no amendments to the registration details.

In this situation, the progress of the incapacitated partner should be monitored regularly. If the absent partner does return to the partnership no changes need be made to the registration. If, on the other hand, it turns out that the incapacity is permanent, you will need to strike the former partner’s name from the VAT 2.

Sole remaining partner

The incapacity of a partner will only have an effect on the partnership if, as a result of that incapacity, the partner is forced to resign. Where the incapacitated partner resigns from a partnership and leaves only one remaining partner, you should either:

  • deregister the partnership and register the remaining partner as a sole proprietor, or
  • if the remaining partner wishes to retain his existing VAT number, call for a completed VAT 68 from the remaining partner (as both transferor and transferee).

If, after the incapacitated partner has resigned, there are still two or more partners remaining, what action you take depends on what form of name the partnership is registered under. If the partnership is registered in the firm name you need do nothing except strike the name of the incapacitated partner from the VAT 2. If the partnership is registered in the individual names of the partners, you will need to remove the name of the incapacitated partner from the trader’s name on the register.

If a partnership is dissolved in this manner and the business activities are carried on by a sole proprietor, you should deregister the partnership and reregister the sole trader or reallocate the VAT number (if that’s what the trader wants) allowing the sole trader to sign as both partner (transferor) and sole trader (transferee).