Partners win right to appeal taxable partnership profits

Partners are increasingly being forced to “retire” as a result of the economic downturn, leading to a rise in partnership tax disputes.

Anecdotal evidence suggests enforced “retirements” are on the rise, are often acrimonious and are frequently accompanied by arguments over the amount of taxable profits which should be allocated to the partner, according to accountants Smith & Williamson.

Departing partners can be faced with a substantial tax bill with which he or she disagrees.

The situation is made worse by the fact there is often “an inequality of arms between the warring parties”, Smith & Williamson says, since the retired partner may not be able to afford legal representation and may no longer have access to the firm’s detailed records. Moreover, HMRC will only liaise with the partner nominated by the firm to compute assessable profits, and has hitherto treated this figure as “sacrosanct”.

However, two recent tax tribunal decisions suggest HMRC’s stance is incorrect, and have found in favour of the individual.

In Morgan