Background When a business partnership is formed and registered with HMRC for tax purposes using form SA400, the partners are asked to name the "representative partner". This is the person in the partnership who will represent the business; and this is the person, it transpires, who will have the right to appeal.
Tale of a partnership Two students started a partnership at university as part of their course. On form SA400, Mr W was named as the "representative partner" and Mr D, or Jack, was named as the "relevant partner". Filing a tax return for a partnership As the representative partner, Mr W was responsible for filing the partnership’s tax return in 2014; Mr D supplied his partner with the information he needed to file the tax return, but it was filed six months late, so HMRC fined each partner £1,300 for submitting a late tax return.
Tax due? There was probably little or no tax due, in fact, they probably earned less than the personal allowance because both partners were still students at the time, and the business was only active for a year making a profit of only £1,356. Paying the penalty / appealing the penalty When the penalty notice arrived, Mr W paid up, but Mr D sought to appeal it on the basis that he had supplied the information to his partner and therefore had a reasonable excuse for the late filing.
The Tribunal’s decision The Tribunal found that HMRC was entitled to fine Mr D for £1,300 for submitting a late tax return that was not his responsibility. The tribunal did not decide whether or not Mr D had a reasonable excuse, because under the law only the representative partner can appeal against a partnership penalty. Mr Walker had not appealed against the penalty charged by HMRC.
What lessons can be learned from this case? This case shows how unfair automatic penalties can be, but it also highlights some other issues:
- File your tax return on time;
- Pay any tax due on time;
- Understand the terms of your business model (i.e. a partnership)
- Be aware of the legal terms of any paperwork you sign (i.e. a partnership)
The case is classic, because it is clear that neither partner realised the importance of the terms "representative partner" and "relevant partner". Had Mr D taken note, he might have stopped his business partner paying the fine and asking him instead to appeal his £1,300 penalty on his behalf.