Quick overview:

HMRC opened enquiries into two limited liability partnerships (‘LLPs”) under section 12AC of the Tax Management Act 1970, and followed up later with the issue of Closure Notices (“CN’s”) as per section 28B of the same act. The enquiry centred around the argument of whether the LLPs were carrying on a business with a view to a profit, however the appeal focused on whether HMRC had opened and closed its enquiry into the LLP tax returns using the correct legal provisions.

The LLPs had submitted partnership tax returns including a claim for BPRA. HMRC, having opened enquiries into these returns, subsequently issued CN’s denying the claim for BPRA. The LLPs then appealed to the FTT on the grounds that following the Court of Sessions decision in the case of “R (oao Spring Salmon & Seafood Ltd v HMRC[2004] BTC 8,108” (“SSS”), HMRC had no authority to open a Partnership enquiry under this legislation and accordingly as per section 28B TMA 1970, no valid closure notice could be issued.

Judge Ruthven Gemmell in his summary confirmed the findings of SSS to be ‘good law’ and regardless of the decision being disputed by both parties, agreed with Lady Smith that it was clear that the TMA 1970 Act was not in itself part of the Income Tax Acts, further endorsed by the decisions in the matter of ‘Margott (as a representative member of MDL Property Consultants [2018] TC06278’ and UTT in ‘Bartam v HMRC [2012] BTC 1,614’.

The Tribunal found that in the first instance the LLP was, as per the terms of the ‘Limited Liability Partnership Act 2000’, to be a tax body corporate and therefore subject to corporation tax as a separate legal entity. Accordingly any enquiry should have been opened under Schedule 18 para 24 of the Finance Act 1998 (the corporation tax self-assessment provisions), and if HMRC had then wanted to challenge the relevant return of any of the LLP’s members they should have then opened an enquiry into the individuals personal tax returns as per schedule 9A of the Tax Management Act 1970.

Judge Gemmell found that HMRC’s policy of using legislation applicable to partnerships in dealing with enquiries into LLPs was wrong; and whilst this practice has ultimately stemmed from the general rule that LLPs carrying on a business with a view to a profit are required to complete the standard partnership return, it would be more practical if HMRC could design a return for LLP members that encompassed the need to report the applicable information needed both for self assessment liabilities as well as any allocation of amounts which may be due under corporation tax.

As there were no valid CN’s issued in this case the appeal was allowed. The case was then struck out as per the Tribunal Procedure (First-tier Tribunal (Tax Chamber Rules 2009 (SI 2009/273 r.8(2)(a)) on the grounds that the FTT did not have jurisdiction in relation to appeal.


This tribunal decision arguably casts doubt on the validity of every enquiry HMRC have opened into an LLP on the grounds of trade/trading with the view to a profit; which then further questions the validity of any CN’s subsequently issued. This matter is further compounded by the fact that HMRC may not have opened the necessary s 9A enquiries at individual level and may therefore now find themselves ‘time barred’ from taking corrective action.

Whilst it is encouraging to note that this judgement has been based on ‘good law’, clarity on the final position is still some way off, and HMRC having been granted the right to appeal, the case is scheduled to be heard in an Upper Tier Tribunal on 27 April 2020.

Based on the current judgment, if a tax payer has received a CN they should review their files and confirm the process by which HMRC originally opened their enquiry. If it transpires that the taxpayer was never issued with a personal enquiry into their individual tax affairs as per s9A TMA 1970, they might want to review their position and give due thought as to whether these notices are valid.

Newport can assist you in this process.

Link to judgement – http://financeandtax.decisions.tribunals.gov.uk//judgmentfiles/j11186/TC07223.pdf

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