PM150000 - Disputes over allocation of profits and losses to partners
A partnership return is conclusive for tax purposes as to whether a person does or does not have a share in the profits or losses of the partnership for any period, and what the partners share of those profits or losses actually is. This is subject to any specific tax rules that may apply.
For partnership returns relating to 2018-19 and onwards, where a partner disputes the amount of profit or loss allocated to them in the partnership return as per the partnership statement they received from the partnership the partner must still enter the amount from the partnership return on their own return (For guidance on how a partner should complete the partnership pages of their self-assessment return see SA104 return guide). The partner can then choose to refer the dispute to the First-tier Tribunal, see guidance at ARTG 7550. This referral must be made within 12 months of the day after the partnership return was submitted or, if it relates to a taxpayer amendment of a partnership return, within 12 months of the day after the date the amendment was made.
The Tribunal Service is a body independent of HMRC with the authority to determine the correct share of the partnership’s profits or losses to be used. HMRC is bound by its decision.
If a partner wishes to dispute the allocation of profit or loss and are within time to dispute the allocation, an application must be made to the Tribunal in writing to the following address:
HM Courts & Tribunals Service
First-tier Tribunal (Tax Chamber)
PO Box 16972
Birmingham
B16 6TZ
United Kingdom
When the partner writes to the Tribunal Service, the letter should be headed with the reference “Dispute of my share of partnership profit and loss” and include:
- the partners name, address and Unique Taxpayer Reference (UTR)
- name, address and UTR of the partnership
- reporting partner’s name
- nature of dispute
Along with the information detailed above, when submitting the application to the Tribunal the partner should also include information about the disputed amount (the amount included in the partnership statement) and the amount that they believe that the profit allocation should be. An explanation of the partners understanding of the reason for the difference in the two amounts and provide any supporting evidence should be provided too.
When the application to the Tribunal to dispute the amount in the partnership return has been received, the Tribunal will contact the partner, confirm receipt and set out the next steps.
If the partner has any questions or concerns in relation to the application to the Tribunal or process, contact the tribunal on:
Email: taxappeals@justice.gov.uk
Telephone: 0300 123 1024
A partner cannot refer a dispute that is in substance about the total amount (before allocation between the partners) of the partnership’s profits or losses for a period.
The partner must notify the reporting partner of the partnership (the person who made the partnership return or their successor) and HMRC that the dispute has been referred to the Tribunal. This must be done at the same time the referral is made to the Tribunal. The reporting partner is then required to notify every other partner and other interested parties of the dispute.
The Tribunal will determine if the allocation set out in the partnership return is correct and, if not, will determine what the allocation should be. HMRC will then amend the partnership return and any partners’ returns to give effect to the consequences of the amendment of the partnership return.
At any time after a referral has been made to the Tribunal, but before the Tribunal determines the dispute, the reporting partner can notify HMRC that all the partners have agreed between themselves in writing what the correct allocation of profits or losses is. If this differs from the allocation currently reported in the partnership return HMRC will then make any consequential amendments to partners’ returns to give effect to the amended allocation. The effect will be the same as if the Tribunal had determined the dispute – in other words it is not possible for one of the partners to subsequently dispute the agreement and seek to refer it to the Tribunal. However, a party to the agreement may withdraw within 30 days of the date of that agreement. Similarly, HMRC may object to the agreement within that 30 day period.
HMRC can enquire into the partnership return following the referral of a dispute to the Tribunal up to and including the quarter day next following the first anniversary of the day on which HMRC received notification of the referral. There may also be ongoing enquiries into either the partnership return or the partners’ individual returns. See PM151000 for more details on the interaction between the dispute and enquiry processes.
A partnership return which has been the subject of a dispute referral may not be the subject of another referral unless that other referral relates to a dispute arising in consequence of an unrelated amendment of the partnership return. The partners and interested parties will have been notified of the initial referral and so have opportunity to participate in that dispute process.