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HMRC internal manual

VAT Taxable Person Manual

HM Revenue & Customs
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Issues to consider: joint ventures and partnerships: does a partnership exist?

The first question to answer is whether the venture constitutes a partnership. This involves looking at all relevant facts in order to determine the true intention of the parties. Written agreements are not indicative of this in isolation. It is possible, for example, for a partnership to exist despite a written agreement denying this: partners will sometimes deny that they are partners under the Partnership Act 1890 for indemnity purposes.

Your starting point for answering this question should be the guidance at VATREG. The following are casework and tribunal examples where this question was addressed and a partnership was found to exist.

  • Two property companies came together to develop a property and drew up an agreement by which the title to the property was transferred to themselves as joint tenants in common. All decisions relating to the development were taken by a management committee which comprised one representative from each company, and joint books of account were set up to cover the expenditure and receipts of the development. The agreement also stipulated that any profits or losses from the development would be shared equally between the two companies.

We ruled that, in this case, a partnership did exist - despite the fact that the agreement stated that the two parties were not to be construed as a partnership under the Partnership Act 1890. It is common in these situations for the partners to deny a partnership for indemnity purposes, and this does not affect the reality of the situation.

  • In Mr G W and Mrs J A Green (LON/91/2594Y), the appellants bought a series of lock-up garages and rented them out with a view to building up their joint pension fund. The Greens argued that they were not partners in business, but simply husband and wife making an equal and joint investment in creating a pension fund from which they would both benefit.

However, the tribunal considered that the activities went beyond the mere passive receipt of rent and that a contract was implied between the Greens which amounted to a partnership.

Factors which influenced the tribunal’s decision were the fact that the properties were always registered jointly, the decision to buy more was made jointly (using funds withdrawn from joint accounts) and letters agreeing terms with tenants were headed in the joint names and requested payments to the joint account.

If a partnership exists, the consequences are relatively straightforward. The partnership is a legal entity which will be eligible to register for VAT if its turnover exceeds the registration threshold. Supplies are made to and from the partnership, including supplies to and from partners where they trade independently and are not acting in their partnership capacity. But supplies are not made within the partnership - thus the financing of a partnership by the partners and the distribution of partnership profits are not the consideration for any supply.