EM7566 - Partnerships: enquiries: concluding an enquiry - a full example

The following example shows how the SA rules for enquiries apply to partnerships and partners. Although it’s not intended to be totally realistic, it does show how various aspects of the legislation can interact.

Alan, Brad and Clare carry on a business in partnership. They share their profits in the ratio 30:20:50.

Alan made and delivered the partnership tax return for the year ended 5 April 2021. He is the nominated partner for the partnership return. The partnership return showed a trading profit of £100,000; it had no other source of income. The partnership statement showed that the amounts of trading profits were allocated to the partners as follows

  • Alan - £30,000
  • Brad - £20,000
  • Clare - £50,000

Alan, Brad and Clare each made and delivered their own personal returns. In addition to their share of partnership profits, Alan reported that he received UK dividends (£200) and Brad reported income from property (£4,000).

We have concerns that the partnership trading profits have been underdeclared, and also that Alan and Brad have underdeclared their personal non-partnership income. Clare reported no other income.

Enquiring into the returns

Notice of intention to enquire into the partnership return under s.12AC would be given to Alan as the nominated partner. The giving of a notice of intention to enquire into the partnership returns under s.12AC is deemed to include the giving of a notice of enquiry into the partners returns too. Courtesy letters should be sent to each of the partners notifying them of the enquiry into the partnership return.

As we have identified risks relating to Alan and Brads personal returns which do not involve the partnership, we should give a separate notice of intention to enquire into each of their personal returns under s.9A.

Information notices

The enquiry notice was given to Alan, the nominated partner, and included the initial informal request for the partnerships books and records within a specified period. Alan did not comply with the request and so we now need to use formal information powers. We must issue a combined first party notice and third-party notice under Sch36 FA08. To request the records relating to Alan’s tax position (the first party notice) and the partnership’s records (the third-party notice). See CH23720.

Brad also fails to provide the information that we informally requested in the enquiry notice issued to him with respect of his personal return. We will issue a first party taxpayer notice for the records relating to his income from property.

Concluding the enquiry

At no time has a partial closure notice been issued in respect of the enquiries.

During our enquiry we discovered that the trade profits from the partnership have been understated by £50,000. We also find that Brad overstated the expenses in respect of his income from property by £1,200.

Once we’ve completed our enquiry into the partnership return, we must issue a final closure notice to Alan (the nominated partner). The notice amends the partnership return to increase trade profits from £100,000 to £150,000. An amended partnership statement will be issued alongside the closure notice which amends the partnership return to increase the trade profits by £50,000 to show how the profits are now split between the partners. Each partners share of profit is increased in accordance with the profit sharing agreement on the original partnership return

  • Alan - £45,000 (increased by £15,000)
  • Brad - £30,000 (increased by £10,000)
  • Clare - £75,000 (increased by 25,000)

Once the partnership statement has become final, we will make the consequential amendments to each partners return to give effect to the amendments made to the partnership return. We will do this by issuing a notice to the partners under s.28B(4) to increase their share of the partnership profits.

We are now also ready to complete the enquiries into the partners personal returns. We will do this by issuing a final closure notice under s.28A.

Alans final closure notice will show that no amendment is required. This is because the only amended that was needed to his return was in respect of partnership profits, and that amendment was dealt with as a consequential amendment under s.28B(4). We do not need to amend his return further in respect of his UK dividend income.

Brad overstated his expenses relating to his UK income from property. His final closure notice will amend his return to reduce the property expenses and increase his income from property. We do not need to include an amendment in his final closure notice in respect of the partnership income as the amendment has already been dealt with as a consequential amendment under s.28B(4).

Clare does not need a final closure notice as we did not a give separate notice of intention to enquire into her return. The amendments in respect of the partnership income have already been dealt with as a consequential amendment under s.28B(4).

Appeals

Alan can appeal against the conclusions stated or amendments made in the partnership closure notice.

The partners cannot appeal against the consequential amendments made to their return under s.28B(4).

Alan or Brad may consider appealing against the conclusion stated or amendment made in their personal closure notices.


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