Members of a Film Partnership which I represent have just received a very intimidating letter from HMRC the basis of which is a warning that each partner is an associate as defined in s417 ICTA 1988 and that any companies controlled by one partner are associated with all of those controlled by other partners. The letter inserts the word 'business' before partner when quoting s417. The letter goes on to ask for details of all companies controlled by the partner to allow HMRC to advise them of the number of associated companies for the purposes of any ICTA88/S13 claims.
Is this another form of enabling letter? As the letter has been sent out by a Personal Return Compliance section, I'm tempted to advise the partners to ignore the letter or reply saying the question asked has no relevance to their personal returns.
I'm also concerned that HMRC are aggressively misconstruing the meaning of associate. I've never before come across a suggestion that members of a partnership are associates for these purposes and from the context in which 'partner' appears in the section do not think such an interpretation could easily be placed on it. This could obviously have connotations away beyond film partnerships. I'd be interested to read anyone else's views.
Ian MacMillan
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Replies (6)
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Keyword
At a recent course, the speaker mentioned that the key word in s416(6) is "may" rather than "shall".
In the past, she said, the Revenue had tended to turn a blind eye to business partners, but as they've had limited success in attacking film partnerships etc through other means, they've suddenly cottoned on to the fact that they can attribute partners' rights as associates under this legislation, hence the current attacks.
HMRC view
Chris,
Thanks again for your input.
I agree with your analysis that this is the HMRC view based on their manuals, but it is still only their opinion and they're not always right.
What I'm trying to find out is if there's anything to back up that opinion outside Revenue Manuals, e.g. case law.
section 416 Tricky huh?
This all seems very tricky on the Revenue's behalf. It Seems to mean that if a partner has 99 business partners and each and every partner possesses a 51% share in their own small Ltd. co., then there are 100 associated companies for the purposes of section 13. Of course for various large accountancy and legal partnerships this must be totally daft. So why are film partnerships different? I have the letter too, Ian, and I am not inclined to reply to HMRC.
This seems more daft than anything in the tax law to date, and it seems nearly impossible to police. Luckily my client does not have a small limited company of his own, but the letter seems to be taking the matter too far.
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Rebut
Thanks for the replies and the reference to the earlier string.
My question remains however what is HMRC's authority for saying that 'partner' in s417 means business partner. Partner is not defined anywhere within ICTA as far as I know. To my mind, we should then look to either the widest possible meaning (Should I warn my bridge partner that companies we control seperately will be regarded as associated by HMRC?) or to the rule of ejusdem generis, defining a word by the context in which it is found. As partner is found linked to relative in s417, should it not be read as life partner rather than business partner?
Big firms
for what it is worth I have heard same point raised on courses several times over the last 10 years and at least one made the point that yes in his view it DID apply to the big accounting firms - after all if the point is valid why not them as well? I think hithero HMRC have just turned a blind eye on this point or not considered it worth its while to test it but as someone says below it is another route to get at the tax avoidance schemes that film partnerships represent.
I have however never come across any case law on it (although I have looked out for it as in the past I had a client whose spouse was partner in big 4 firm) so maybe someone behind the film partnerships is going to have to be ready to take a case.