HMRC SDLT: SDLTM33270 – Ordinary partnership transactions: Example 2

Principles and Concepts of Ordinary Partnership Transactions

This section of the HMRC internal manual provides guidance on ordinary partnership transactions, specifically through Example 2. It outlines the principles and concepts involved in such transactions, ensuring compliance with tax regulations.

• Explains the tax implications of partnership transactions.
• Provides a detailed example to illustrate the application of rules.
• Ensures understanding of compliance requirements for partnerships.
• Aims to assist HMRC staff in interpreting partnership tax rules.

Understanding Penalties and Liabilities in Partnership Transactions

When partners in a business fail to submit their tax return on time and do not pay their tax by the deadline, there are certain penalties and liabilities that apply. This article explains how these penalties work, using an example to clarify the responsibilities of each partner involved.

Example Scenario

Let’s look at an example that is similar to the one found in SDLTM33260. In this case, we have a partnership where the tax return was not submitted, and the payment of the tax was only made on 10th June 2019. Due to the delay, there are some consequences, including penalties and the accrual of interest as a result of the late filing.

Penalties for Late Submission

• When a tax return is filed late, a penalty is incurred according to Schedule 10, Paragraph 3.
• In our example, the return was submitted after the deadline, resulting in both a penalty and interest charges.

Role of Partner D

In the partnership, Partner D is deemed a responsible partner. However, it is important to note the following points regarding their responsibilities:

• Partner D is not personally liable for paying any of the tax or interest incurred due to the late submission. This is established in Paragraph 7(1A).
• Even though D is not liable for tax or interest, he is jointly responsible for the fixed penalty. This is because he was a responsible partner at the time the tax return was supposed to be filed.
• The specific rule here is found in Paragraph 7(3)(b), which states that a responsible partner is liable for penalties that arise from omissions made when they were part of the partnership.

Daily Penalties

It’s also important to understand that if additional daily penalties are incurred while the return remains unfiled, Partner D would be liable for those penalties as well, provided that he was a responsible partner on the days when these penalties accumulated.

Implications for All Partners

• Each partner within the business must be aware that their actions can result in penalties not just for themselves, but also for the partnership as a whole.
• If one partner is deemed responsible, that partner could face financial penalties even if they were not directly at fault for the tax filing issues.

Consequences of Late Payment

The consequences of not submitting returns or paying tax on time can lead to:

• Financial Penalties: Fixed penalties and daily penalties can add up, increasing the amount the partnership is required to pay. This can lead to serious financial strain.
• Interest Charges: Interest will accrue on unpaid amounts, making the total owed higher the longer the payment is delayed.

Understanding Joint and Several Liability

In partnerships, the concept of ‘joint and several liability’ plays a significant role. Here’s what it means:

• If the partnership owes a penalty, all partners can be held accountable for the full amount, regardless of individual culpability.
• In our scenario, Partner D shares liability for the penalty incurred because he was responsible at the time of the omission.

Staying Compliant

To avoid these penalties, partners should aim to:

• Keep accurate records and submit tax returns by the deadlines.
• Set reminders for tax due dates to ensure timely payments.
• Communicate openly about any concerns regarding tax filings within the partnership.
• Seek professional advice if unsure about any aspects of tax compliance.

Conclusion

Understanding the implications of late tax return submissions and the responsibilities of partners in a partnership is essential for maintaining compliance and avoiding unnecessary financial penalties. Partners must take their duties seriously, especially when it comes to adhering to deadlines for both submissions and payments.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM33270 – Ordinary partnership transactions: Example 2

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