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Partnership statements

Partnership statements

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This isn't really a question more sharing my experience.

I've just succeeded in getting HMRC to accept that the partnership figures on my client's personal tax return are correct - albeit that they don't agree with the partnership tax return. The partnership accountants (an otherwise reputable firm!) submitted a partnership return which didn't correctly reflect that some partners were fixed share partners. As a result, my client's share of the taxable profits was overstated. It's a long story (stretching over three years!) but the equity partners (it's a big partnership, with a management board) refused to change the returns for the earlier years, made some changes in the method of division going forward but not enough (they allocated disallowed expenses to fixed share partners) - and insisted that they could divide the taxable profits however they wanted as long as the total added up because HMRC wouldn't care.

They were wrong!

HMRC have agreed that I am right (after a very long discussion where we agreed to disagree on whether in principle disallowed expenses could be allocated between partners by agreement since they can't form part of accounting profits!) - and will be issuing discovery assessments for the equity partners for the last four tax years! My client has left so doesn't have to deal with the fall out, fortunately.

I thought I would post my experience here so that members acting for individual partners but not the partnership can see that partners should not be disuaded from submitting figures different from the partnership tax return if that return has been prepared incorrectly and also, for members acting for the partnership but not all the partners, to emphasise the importance of ensuring that the division of taxable profits reflects the way in which accounting profits are calculated - to ensure they are not open to challenge. HMRC are telling the partnership to redo all the figures for four years to reflect the accounting split - and I'm guessing the accountants may end up bearing the bulk of the cost of doing this as presumably the partnership were acting on their advice.

I would be interested to hear any AWeb member's similar experiences.

Cathy

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By ShirleyM
26th Sep 2011 16:10

Thanks for the tip Cathy

We don't seem to have many partners or partnerships but I will remember your tip :)

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