In R King & Others v HMRC [2016] TC05163, the First Tier Tribunal (FTT) found that the members of an LLP could declare a different profit share in their personal returns if they believed that the figure in the partnership return was incorrect.
- The appellants were members of an LLP accountancy practice.
- Under the LLP agreement, two independent corporate bodies were responsible for preparing the accounts and partnership return.
- The LLP accounts for the period, which showed a loss, were given a clean audit report.
- A large add back was made in the tax computation resulting in a profit. The LLP members did not believe this add back was correct, so filed their own tax returns to reflect what they felt their profit share should have been.
HMRC sought to argue that there was a statutory obligation under s8(1B) TMA 1970 for a partner to include in their individual return whatever profit share is shown in the partnership return.
The FTT rejected this argument, finding that:
- The purpose of s8 is to establish the right amount of tax.
- There was no basis for the add back in the partnership return.
- The correct profit shares were therefore those included in the members’ individual returns.
- The individual members were entitled to appeal the amendments made to their returns.
The taxpayers’ appeals were therefore allowed.
Comment
HMRC's argument was contrary to their own guidance, see our guide Disputed profit share: what do I put in my return?
Links
Case reference: R King & Others v HMRC [2016] UKFTT TC05163
Update
HMRC have appealed to the Upper Tribunal. This appeal has now been withdrawn, so the FTT decision will stand.