Partnership Dissolution

Partnership Dissolution

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Our client is a two partner partnership formed several years ago. No formal partnership agreement was drawn upon on commencment. Annual partnership returns have been filed each year signed by either or both of the partners. However, payment of taxes of PAYE tax of the business from 2003/04 to date have not been up to date and HMRC has now raised a determination. The tax office has sent both parties a Bankruptcy Order notice to try to recover the payment from the party that yields most easily to payment. One of the partners now claims that he actually ceased to be a partner since 2001. To make matters more complicated, the other partner agrees with this date as being correct dissolution date and is ready to take over all the debts of the business including unpaid PAYE tax bills. However, no copy of dissolution agreement was signed by both parties at the time .They have now requested us to approach the tax office and request amendment to their respective personal tax return and partnership return. We have advised them that if we are to consider taking such a step, we will as a bare bone mimimum require a signed & witnessed dissolution of partnership agreement.

Do you think we are taking the right approach here? Should we request anything else from the two parties before approaching the tax office?

In such a situation what type of other disclosure/disclaimer should we request that would dissociate us from being seen as an active party in their previous verbal agreement ?

Any opinions or comments would be highly appreciated.

Kailash Khagi

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Euan's picture
By Euan MacLennan
16th Nov 2007 10:47

Engagement Letter
A formal dissolution agreement seems incongruous when there was no formal partnership agreement. Nor do I share your concern about anyone thinking you were an active party in your clients' affairs; you just did not know your clients very well and an apology at the outset to the Revenue for misleading them should facilitate matters.

What you need is an engagement letter, signed by both former partners and yourself, reciting the fact that the partnership was actually dissolved in 2001 and setting out that they now want you to represent them to the Revenue in withdrawing/amending previously submitted partnership and personal tax returns in order to reflect the fact. Presumably, you have already prepared accounts for the "partnership" since 2001 which can be easily renamed as sole trader accounts.

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