Rebecca Benneyworth considers the problem of on-line filing for partnerships.

As 31 October has now passed, those of us still needing to file partnership returns will need to file them online if we wish to avoid incurring a penalty for late filing.

Although late filing of paper returns (filing between 31 October and 31 January) attracts a penalty for late filing of £100, in respect of individual returns the penalty can be capped at zero by ensuring that all tax due is paid by 31 January 2009. It is likely that filing a paper return sometime now will trigger a penalty notice for late filing, so the taxpayer should ensure that not only the tax, but the penalty are paid in full by 31 January, and then can apply to have the penalty capped at nil and the payment refunded. Clearly it is not sensible to cap the penalty before the tax has been paid, but if a notice of penalty is issued before 31 January, this liability will show as due. A payment of the amount of tax due would need to be applied only against the tax liability and not the penalty to ensure that the capping procedure would apply, and as this is fraught with risk it is probably preferable to pay the tax and penalty and then apply for the £100 to be refunded.

Partnership returns, however, do not show a liability to tax. This means that the opportunity to cap the penalty at the tax outstanding on 31 January is not available. So a partnership return filed on paper after 31 October will be liable to a penalty of £100 per partner (under Section 93A TMA 1970) even if the return shows a loss.

There are, however, in the case of both individual returns and partnership returns one or two other points to bear in mind. First, that under both Section 93 in respect of individual returns and 93A in respect of partnership returns, the taxpayer can plead reasonable excuse. Although the opportunity to use this to cancel the penalty is limited to situations where the default is rectified as soon as the reasonable excuse ends, it may present some opportunity to remove penalties in some cases.

In respect of individual returns only, there is also a stock of reasonable excuses in the document entitled These are the cases for which online filing is not possible, and range from broad categories of taxpayers – such as MP’s – to very specific cases where the interaction between entries on the return gives technical problems. Any taxpayer unable to file online for one of these reasons is invited to notify on the return that he has reasonable excuse for filing on paper after the normal deadline. These cases may be filed on paper up to 31 January without incurring a penalty. By encouraging taxpayers to make their reasonable excuse claim on the return itself, HMRC are clearly hoping to minimise the number of incorrect penalty notices issued, which then have to be appealed against.

Partnership returns do not have any exclusions so there is no possibility of claiming reasonable excuse on these grounds. This means that in essence partnership returns which have not been filed by now will need to be filed online. This brings up another problem – the lack of partnership return software free of charge from HMRC.

HMRC has had to make some difficult decisions about how much resource to spend on providing free software for online filing. This remains a difficult area – spending limited resource on increasingly minority areas of the return provides diminishing returns for HMRC, and might be viewed as inappropriate use of public money providing free software to a minority of probably quite wealthy taxpayers who could well afford to purchase commercial software to file their return. There are still some who believe that as a matter of principle HMRC should make free software available to all taxpayers. However, this overlooks the very significant cost of developing the software required.

Personally, I baulk at the idea that HMRC will provide free software to accountants who are charging for their services in preparing returns. Taxpayers’ money (including mine) is not well spent providing free resources to commercial service providers.

The final straw, of course is for those of us confronted in January with partnership returns which cannot be filed online. This would probably most commonly be through the appointment of a new partner who has not previously been within self assessment and thus does not have a UTR. The partnership statement must show a UTR for every partner, and without a UTR the return cannot be filed online. It would benefit all advisers to now check all of their partnership clients to ensure that all partners have a UTR so that when the return is ready for filing there are no snags.