Refusual to sign a partnership tax return

Nominated partner refuses to sign accounts and partnership tax return

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A situation has been developing for some time in that the partnership (fairly large > 12 partners, professional firm) refuses to sign off on the accounts and resulting tax return for 5th April 2017 and now likely 2018. I do not act in anyway for the firm and have no notion as to what the dispute is about however it seems it divides the firm.

Although I have since filed my own client's return for 5th April 2017 on a provisional basis and probably will do the same for 5th April 2018, the penalty notices are becoming a source of increased worry & frustration - I have written to HMRC many times but they are either unable or unwilling to do anything until the Partnership Return is submitted.

Can anyone suggest how this might be resolved?

 

Replies (59)

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RLI
By lionofludesch
21st Jan 2019 17:37

Seriously - not your problem.

Leave them to it. Don't get involved. Let the firm who deals with the partnership affairs deal with it.

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Replying to lionofludesch:
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By Roland195
21st Jan 2019 17:58

You are no doubt right but it's my client who receives the penalty notices and I can't help but feel a responsibility to him in the circumstances.

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By Wanderer
21st Jan 2019 17:46

This is one of the ridiculous anomalies of the penalty system.
The penalties for the late filing of the partnership tax return are levied on the individual partners, but said individual partners do not have it within their control to deal with the situation. Similarly HMRC won't accept an appeal from anyone other than the nominated partner!

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Replying to Wanderer:
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By Roland195
21st Jan 2019 18:04

Unfortunately, that is another issue - my client has no idea who the nominated partner is, the partnership's accountants won't say (other than to confirm it's not him). The chances are it will be one of the dissenters, and it does not seem they are remotely bothered by the penalties.

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Replying to Roland195:
RLI
By lionofludesch
21st Jan 2019 18:12

If I were him, I'd seriously consider whether these people were the sort of people I'd want for partners.

What happened to uberrima fides ?

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Replying to lionofludesch:
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By WhichTyler
21st Jan 2019 20:07

lionofludesch wrote:

What happened to uberrima fides ?

I think she's running a beach bar in Cancun

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Replying to lionofludesch:
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By Roland195
21st Jan 2019 21:38

I think that's the attitude HMRC takes too, fly with the crows etc but in this case, it does seem that they are motivated by a genuine desire not to sign off on something they don't agree with. Ironically, if they were dodgy, they'd probably have no problem signing anything put in front of them. It does raise the question of what happens with other disagreements I suppose, but it's also the case that the dissenting partners are at a different point where they can afford to stand on principle - why a provisional tax return can't be filed is beyond me though.

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Replying to lionofludesch:
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By andy.partridge
21st Jan 2019 22:13

So many prog rock bands fell by the wayside when punk came in.

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Scooby
By gainsborough
21st Jan 2019 20:35

It is a ridiculous system.

Mark McLaughin wrote a really good article in Taxation magazine a few years ago....looks like nothing has changed since then! www.taxation.co.uk/Articles/2012/11/21/50151/out-cold

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By carnmores
21st Jan 2019 22:59

Have a partners meeting and change nominated partner and sue the current accountants

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Replying to carnmores:
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By Rammstein1
22nd Jan 2019 07:30

How can you sue the current accountants? If the nominated partner refuses to sign the accounts and tax return, the accountants can't force him.

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Replying to Rammstein1:
RLI
By lionofludesch
22nd Jan 2019 08:05

Maybe he won't sign because the accounts are wrong.

Maybe that's the accountants' fault.

We don't know.

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Replying to Rammstein1:
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By carnmores
22nd Jan 2019 08:42

so the accountants wont tell him who is the nominated partner - they bloody well should - they act for the partnership not for the individual. He should ask for and receive a full copy of the last submitted return from either or both the accountants or HMRC

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Replying to carnmores:
RLI
By lionofludesch
22nd Jan 2019 09:27

Well said.

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Replying to carnmores:
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By Rammstein1
22nd Jan 2019 09:31

Yes the accountant should tell the partner who the nominated partner is.

But they should still not be sued. If the accounts are wrong, the partners should discuss them and request changes to be made.

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Replying to Rammstein1:
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By carnmores
22nd Jan 2019 09:46

they wont tell the partner who is the nominated partner, of course they should be sued a complete dereliction of duty that is costing all the other parties penalties and therefore its not just negligence its deliberate.

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Replying to carnmores:
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By Rammstein1
22nd Jan 2019 09:58

How can it be a complete dereliction of duty when they have prepared the accounts and Tax Return? There is obviously a massive problem within the partnership that needs to be resolved.

I would suggest to the partner to look at the partnership agreement to see if there is any way round the impasse (majority vote?) rather than to sue the accountant.

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Replying to Rammstein1:
RLI
By lionofludesch
22nd Jan 2019 10:04

Rammstein1 wrote:

How can it be a complete dereliction of duty when they have prepared the accounts and Tax Return?

They won't say who the nominated partner is.

What I'd like to know is why is that a secret ?

What happens at partners' meetings ?

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Replying to lionofludesch:
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By carnmores
22nd Jan 2019 10:31

one could be forgiven for thinking that Ram is the accountant lol :-)

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Replying to lionofludesch:
paddle steamer
By DJKL
22nd Jan 2019 10:43

Maybe what happens at partners' meetings stays at partners' meetings.

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Replying to DJKL:
RLI
By lionofludesch
22nd Jan 2019 10:52

DJKL wrote:

Maybe what happens at partners' meetings stays at partners' meetings.

Happen, aye. But the partner who's complaining ought to be there.

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Replying to lionofludesch:
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By carnmores
22nd Jan 2019 10:56

12 partners 12 steps?

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Replying to carnmores:
Red Leader
By Red Leader
22nd Jan 2019 11:22

Ah yes of course! 12 Angry Men.

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Replying to Red Leader:
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By Roland195
22nd Jan 2019 12:19

More like 1 angry man, 3 or four annoyed and the rest indifferent - not quite as catchy

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Replying to Roland195:
Red Leader
By Red Leader
22nd Jan 2019 12:20

You've summed up Brexit.

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Replying to Roland195:
RLI
By lionofludesch
22nd Jan 2019 12:35

Roland195 wrote:

More like 1 angry man, 3 or four annoyed and the rest indifferent - not quite as catchy

I'd go to the pictures to see that fillum.

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Replying to lionofludesch:
paddle steamer
By DJKL
22nd Jan 2019 11:18

But he can say nothing-it is all a secret; omerta?

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Replying to lionofludesch:
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By Roland195
22nd Jan 2019 12:15

Sorry, I should have made this clear - as far as I am aware, the accounts and tax return has been properly prepared in good time by the accountants who act for the partnership and presented to the partners. As far as I can see, they have discharged their duties to the best of their ability.

Why they are reluctant to disclose the identity of the nominated partner I don't know and I am not convinced they do have a requirement to disclose.

It's not as if the nominated partner (or indeed whoever is signing) has lost it or chucked it under a hedge - it's a deliberate act to refuse to sign off that is then outwith the power and responsibility to resolve.

Partner meetings are held, the issue the discussed and then kicked into the long grass. I am not even sure what in law a nominated partner is - it's not an appointment or office that can be held or resigned from.

The partnership agreement makes no reference to this eventuality - it covers the responsibility for, year end and preparation of the accounts but nothing that would resolve.

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By carnmores
22nd Jan 2019 10:59

the answer is a conclave lock 'em in a room till they come up with an answer, same applies to HoP re Brexit

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Replying to Paul D Utherone:
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By Roland195
22nd Jan 2019 17:42

I don't think I have ever seen a form SA670. Realistically, it looks like the Nominated Partner will either be one who's details were entered when first set up or assigned by HMRC probably alphabetically.

From reading, it basically suggests that the NP has almost sole responsibility to file the return, regardless of the approval of other partners.

But then I take it HMRC's only recourse against this not happening is to fine the partnership (and other partners)? Madness.

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Replying to Paul D Utherone:
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By Andy Reeves
23rd Jan 2019 10:00

The manual mentions form SA670, but I can't find the form anywhere on the HMRC/Gov site.

I have never filled one of these forms in and am beginning to wonder whether it is a mythical beast...

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By frankfx
23rd Jan 2019 00:08

Professional firm of solicitors/surveyors?

Write to their professional body for guidance.

The failure to address HMRC matters may be indicative of other shortcomings.

A red flag that that should not be ignored?

A firm of accountants behaving like this would probably be up before the disciplinary committee.

Perhaps the partner(s) suffering as a result should take control----- Parliament has set a precedent .

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Replying to frankfx:
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By Wanderer
23rd Jan 2019 04:28

frankfx wrote:

Professional firm of solicitors/surveyors?

Write to their professional body for guidance.

The failure to address HMRC matters may be indicative of other shortcomings.

A red flag that that should not be ignored?

A firm of accountants behaving like this would probably be up before the disciplinary committee.

Perhaps the partner(s) suffering as a result should take control----- Parliament has set a precedent .

Do you not think that could amount to a breach of confidentiality possibly resulting in you being reported to your own professional body?
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By Justin Bryant
23rd Jan 2019 10:32

This is basically what happed to the Beatles and what led Paul McCartney to go the High Court to dissolve the band.

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Replying to Justin Bryant:
RLI
By lionofludesch
23rd Jan 2019 10:47

The Beatles filed Self Assessment returns ?

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By Ian Bee
23rd Jan 2019 11:10

I'm not a lawyer and would be interested to see any views, but I understood "nominated partner" to mean the individual who is acting on behalf of the other partners.

I can't see how an NP can refuse to act if all the partners agree.

As others have said, this is not a problem for the accountant but one for the partnership as a whole, who currently appear not to be meeting their legal obligations because of the inaction of one individual.

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Replying to Ian Bee:
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By WhichTyler
23rd Jan 2019 11:31

Surely a partner can make a request the partnership nominates [name] as the nominated partner for the purposes of submitting the PTR. That at least will bring it into the open and (if they agree on a person) then inform HMRC (and the accountants) directly...

the HMRC guidance indicates that the form isn't compulsory

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Replying to WhichTyler:
By tonyaustin
23rd Jan 2019 11:51

I believe the nominated partner is simply the partner chosen by the other partners to sign the form for that year on behalf of the partnership. Any partner can sign with the appropriate authority under the partnership agreement. However, if the accounts have not been adopted by the partnership, the profit which is the starting point of the tax computation, is not known. They could however file a return with provisional figures (and draft accounts if required).

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Replying to WhichTyler:
RLI
By lionofludesch
23rd Jan 2019 11:52

I agree- but HMRC have always been reluctant to accept changes of nominated partner. No idea why - none of their business, so far as I can see.

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By Roland195
23rd Jan 2019 13:06

Again, just to clarify a few points, the nominated partner is only one of various others who refuse to approve the accounts in the first instance, and then the tax return by consequence.

I am unable to say why the partnership or accountants can resolve this matter. It is not that it is being ignored or not addressed, rather that no solution can be found. If I had to guess, I'd imagine it invloves profit allocations and the respective partners are unwilling to jeopardise whatever position they hold by agreeing to draft or provisional figures.

I don't know what sort of legal action could be taken, mediation perhaps but it won't solve anything soon.

The partnership agreement talks about approval of the accounts, the Tax Management Act does not so I expect that if the nominated partner unilaterally files then it would be accepted but as he won't, its academic.

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Replying to Roland195:
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By carnmores
23rd Jan 2019 13:19

its time for someone to take a very strict line with them and ask them to set out exactly what their differences are. I suspect that the fines are neither here nor there but they should be advised re the penalties for late payment of tax , i wonder what the partnership secretary (if one exists) is doing?

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Replying to carnmores:
RLI
By lionofludesch
23rd Jan 2019 13:22

carnmores wrote:
.... I wonder what the partnership secretary (if one exists) is doing?

I would imagine he's holding his head in his hands and sobbing uncontrollably.

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By fawltybasil2575
23rd Jan 2019 13:36

@ Roland195 (OP).

Frankly, this is more of a legal question than an accountancy one since, at its heart, are:-

(i) The need for the Partnership Accounts to be agreed in accordance with the Partnership Agreement, both because those Accounts need to be agreed per se, but also to enable the Partnership Tax Return to be prepared therefrom (albeit a “provisional” Tax Return is a “second best” option if the Partnership Accounts cannot be agreed - there may be terms in the Partnership Agreement to state how any dispute re the Partnership Accounts should be resolved).

(ii) Establishing the terms of the Partnership Accountants’ Engagement Letter [albeit less important than (i)].

I would thus respectfully suggest that you consider recommending the client to appoint solicitors to handle the entire matter.

If however you believe that you are sufficiently experienced to deal with the legal aspects of this matter, then your client (or you on his behalf) should request (if not already seen):-

(i) the Partnership Agreement,
(ii) the Accountants’ Engagement Letter, and
(iii) a copy of the Partnership Tax Return Notices for 2016/17 and 2017/18

from:-

(a) The Partners (in a formal letter to the Partnership),
(b) HMRC,
(c) The Partnership Accountants.

Hence you should request (i) from (a) and (c); (ii) from (a) and (c); and (iii) from (a), (b) and (c).
[You may of course, whether validly or otherwise, receive no responses or “no intention to accede to your request” responses, in reply to these requests, but your next actions will depend upon the responses received and/or declined].

I am somewhat concerned by your comment that you “have no notion as to what the dispute is about": in intending no offence, you MUST ascertain "what the dispute is about".

Albeit not central to the issues, you may wish to read the important wording of a Partnership Tax Return Notice (re nominated partners), here:-

https://assets.publishing.service.gov.uk/government/uploads/system/uploa...

Basil.

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Replying to fawltybasil2575:
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By Roland195
23rd Jan 2019 16:49

While I am sure you a right here, I am afraid I have my doubts over what appointing a solicitor would achieve - They would have to be a specialist in Partnership law and I am struggling to see what they could actually do - even if they eventually managed to get a court order to file the return this would no doubt be a long time coming & effectively end the working relationship of the firm.

Of course, it may be that this ship has sailed. Other posters have suggested that if the partnership cannot agree on this, it's future may be in question anyway which is a valid concern.

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Replying to Roland195:
RLI
By lionofludesch
23rd Jan 2019 16:55

A solicitor won't make them agree.

Maybe they should consider whether they should be in a partnership if they have such fundamental disagreements.

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Replying to lionofludesch:
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By Roland195
23rd Jan 2019 17:57

I have a feeling that even if my client was to resign from the partnership and this situation continues into the next financial year, HMRC will still pursue him as no doubt according to their manual, only the nominated partner can inform of resignations.

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Replying to Roland195:
paddle steamer
By DJKL
23rd Jan 2019 19:47

http://www.legislation.gov.uk/ukpga/Vict/53-54/39?view=extent

Start going through above to push matters to a head would be my route, ideally with a solicitor in tow. (se 28 in particular)

See both 24 re profit division and governance, if the issue, and 28 re accountability to the others.

There is surely either a partnership agreement governing the point or a fall back on the 1890 Act and its terms re sharing profits in the absence of specifics in the partnership agreement, if profits are the issue.

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By pauljohnston
23rd Jan 2019 13:45

Ok Nothing in the partnership agreement concerning the nominated partner. Who has the power to change it? If a majority are there sufficient partners to do this.

I look forward to further comments from others on Awb.
I suspect this will become more of a problem as time goes on...

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Scooby
By gainsborough
23rd Jan 2019 14:33

CIOT did try to make representations to the Public Bill Committee a couple of years ago, but apparently the Government did not take on board all the points raised. CIOT published a statement in January 2018 stating:

"....For example, the amendments included in Part 5 of the Schedule do nothing to improve the situation where partners with little influence in the partnership have imposed on them a penalty for a late partnership return where the partnership’s nominated partner has
not submitted the partnership return on time. Compare this to a company where only the company gets a penalty, not each shareholder/director. We think it would have been fairer if the legislation had been amended so that the penalty for a late return is imposed on either the partnership or the nominated partner rather each partner".

So common sense is still not prevailing....

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