In Sword Services Limited & Others v HMRC the High Court held that Partner Payment Notices (PPNs) can be issued to LLPs.   The PPNs were also found to be valid as the relevant partners were aware of enquiries being opened even if official notices were not sent to them.

PPNs are an anti-avoidance measure similar to Accelerated Payment Notices:  HMRC may issue a tax avoidance scheme user which is a partnership with a PPN.  This requires taxpayers to make good any disputed tax upfront, rather than awaiting the outcome of litigation, reversing the cashflow advantage in HMRCs favour.

  • The taxpayers were members of a number of film partnerships set up by Future Capital Partners Limited (FCP).
  • The partnerships formed part of a film funding scheme which entitled the partners to UK sideways loss relief.
  • In 2008 FCP made a disclosure to HMRC about these arrangements.
  • In 2010 HMRC sent notices of enquiry and courtesy letters to some, but not all partners.

The taxpayers argued that:

  • The rules governing PPNs only apply to regular partnerships and not LLPs: an LLP is a separate legal entity and specific provision has to be made if it is to be treated in the same way as other partnerships.
  • The PPNs were not valid as HMRC had not issued notices of enquiry to the partners who made and delivered the returns (a pre-requisite for a PPN).

The High Court dismissed these arguments, finding that:

  • Ordinarily the terms ‘partnership’ and ‘partners’ cover both general and limited liability partnerships and there is no reason why this should not be the case here.
  • The purpose of the PPN rules is to make tax avoidance less advantageous: there is no reason to think Parliament intended to apply this to ordinary partnerships but not LLPs.
  • The partners responsible for the partnership returns were not identified in those returns, so the taxpayers could not complain that they were not sent a notice of enquiry.
  • There is no particular form prescribed for a notice of enquiry: as long as the taxpayer knows of HMRC’s decision to conduct an enquiry that is enough.
  • Although the relevant partners did not receive formal notices of enquiry they were aware of these through correspondence and discussions with HMRC and therefore the enquiries, and PPNs, were valid.

The Court therefore dismissed the judicial review.


This is another case of a film scheme (some would say deservedly) losing out in Court. 

However, the taxpayers may still have some hope left: their judicial review of PPNs based on human rights objections is in the pipeline but standing behind the Court of Appeal’s verdict on APNs in the case of Rowe, Worral & Others v HMRC [2015] EWHC 2293


Our guide: Accelerated Payments & Follower Notices

Case reference: Sword Services Limited & Others v HMRC [2016] EWHC 1473