Following the First Tier Tax Tribunal’s decisions in Morgan v HMRC and Self v HMRC [2009] SFTD 160 HMRC updated its Enquiry Manual to deal with situations where individual partners are in dispute about their share of partnership profit allocation.

Although HMRC expects partnerships to resolve their own differences, a problem arises where the profits returned by an individual differ from those on the partnership return. In that case, for the individual to be able to sign a Self Assessment return as complete and still avoid a later discovery, the return should reflect the correct profits according to the individual, but the white space should be used to reconcile these to the partnership return.

As HMRC’s manual says “… each case will turn on its facts. If there is a discrepancy between profits as allocated by the partnership and profits as returned by the partner, you may need to open enquiries into the returns in order to establish the correct position in respect of both partnership and partner’s returns. Normal culpability considerations will apply.”

The manual also notes that:

SP1/06 gives guidance (in non-culpability cases) on the disclosures a taxpayer should make where

  • figures are uncertain,
  • figures are open to interpretation, or
  • a contrary position to HMRC’s view of the law is taken

in order to protect themselves from a discovery assessment under s29(5) TMA 1970

Source: HMRC Enquiry manual