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We act for a long established partnership, with an accounting date of 31 December, that admitted a new partner on 1 January 2000. The accounting date is intended to remain at 31 December. The new partner's tax return was completed with estimated figures and a note included stating that we expected to submit the actual details (from the accounts for the year ended 31 December 2000) by 31 October 2001.
We act for a long established partnership, with an accounting date of 31 December, that admitted a new partner on 1 January 2000. The accounting date is intended to remain at 31 December. The new partner's tax return was completed with estimated figures and a note included stating that we expected to submit the actual details (from the accounts for the year ended 31 December 2000) by 31 October 2001.
On 8 August 2001 the Revenue issued a notice of enquiry into the 2001 return. A letter was also sent to us stating that the only information the Revenue required was 'the appropriate page showing the actual details'.
We wrote to the Inspector advising that we did not expect to be able to provide the information within the 30 days given, and pointing out that we had originally marked the return that it was hoped to provide the amended information by 31 October 2001. The Inspector agreed to extend the deadline to 31 October 2001.
In the event, the information has not been provided in full by our clients and we now find that the Inspector has issued a notice under section 19A, Taxes Management Act 1970 requiring that the 'partnership page showing details in respect of the partnership' be produced within 30 days. If this is not complied with, the client may be liable to a penalty.
The information requested should now be available in the new timescale, but we wonder as to the validity of the Inspector's action. What may be the grounds for appeal against the notice? How should such cases be handled in future?
(Query T15,925) – Junior.
The problem encountered here stems from a number of factors. Complicated partnership accounts can take some while to complete after the year-end date. That is not disputed. However, a full ten months after the year-end date was possibly regarded by the Revenue as an unnecessarily protracted time-span, which indicates a lack of priority being given to the matter.
Numerically-large and complicated partnerships should consider nominating one particular partner to ensure that accounting matters are given greater priority and more prompt attention in future.
In identical circumstances, it is widespread practice to provide submission of sole traders' and simple partnerships' finalised figures within four months of the year-end, and six months for more complicated cases. This is also a matter of priorities and resources as far as tax practices are concerned. All cases where estimated figures need to be submitted, should be tracked rigorously to ensure that all partners and staff required to produce the final accounts are aware of their wider, tax, responsibilities.
Frequently, some accounting staff are too blinkered into thinking that all that matters is making sure the balance sheet balances, eventually!
Both clients and staff need to be educated into making sure that accounts are ready within six months of the accounting date, with no excuses! I think this advice takes care of the querist's question 'How should such cases be handled in future?'.
Turning to 'What may be the grounds of appeal against such a (penalty) notice?', the short answer is, of course, that one should not put oneself into this position in the first place, as already noted!
However, the only grounds of appeal would be extenuating reasons for an even greater delay than nearly a year! What these might be would require a very fertile mind, but could possibly include inter-partner disagreements over the interpretation of the partnership agreement as regards entitlement to bonuses, etc.
Quite frankly, if practitioners do not submit the finalised figures within the timescale I have recommended (i.e. four months for simple cases and six months for complicated ones), and quicker if possible, they are leaving themselves and their clients wide open for full Revenue audits, for which of course reasons no longer need to be given. – GJF.
The Inspector has every right to issue notices under sections 9A and 19A, but perhaps the Revenue is being too anxious in wanting something before it actually needs to have it. However, as from 11 May 2001 under paragraph 2(1) of Schedule 29 to the Finance Act 2001, a taxpayer has the right to amend a self-assessment entry on his tax return during an enquiry, which was not allowed beforehand.
The providing of the information does not actually close the enquiry, but obviously it would be taken into account, and no doubt will in this case mean the early issuing of a closure notice. It will not preclude any possible penalty action (see Revenue Interpretations RI 195), although I can hardly imagine the Inspector concerned would take such action.
Paragraph 394 of the Revenue's Enquiry Handbook reads as follows:
'Information that can be required under section 19A: The terms "documents" and "accounts" are straightforward and do not need further definition. "Particulars" may include the answers to specific questions (for instance an explanation of how the figure of drawings is made up) but could also lead to the creation of documents, etc. that do not already exist, for example a set of accounts or full capital statements (the section does not refer to this particular category of information having to be "in the taxpayer's possession or power").'
The only grounds valid behind an appeal against the issuing of the section 19A notice would be that the time allowed in the notice for the production of the information was insufficient. The appeal needs to be with the Inspector within thirty days of the issuing of the notice. However, as 'Junior' says, the information will be available by the new date, so the grounds for appeal have been scuppered!
In future, the perhaps obvious course of action to take would be not to submit a tax return with estimated figures, if it is known that the actual figures will be available before the relevant 31 January deadline. However, if it were to transpire, nearer to the filing date, that this information is not going to be available, then use of the estimated figures routine should indeed be employed, in order to avoid the late filing penalty. – N.K.
Editorial note: The query as submitted refers to the 2001 return being subject to the enquiry. However, it seems possible that the problem might relate to the 2000 return for which the filing date would be 31 January 2001, just one month after the partner's first year of participation. 96 days of profits in that year would form part of the 1999-2000 assessment.
This would explain why the Revenue apparently wants something before it needs to have it (in the words of 'N.K.' above). Perhaps it is best if all new partners join as soon after 5 April as possible.
