Rendall - Tribunal reduces penalties imposed for failure to file a partnership return to nil

In Rendall v HMRC [2017] UKFTT 356 (TC), the First-tier Tribunal (FTT) has reduced penalties imposed on partners for failure to file a partnership return on time to nil as the requisite information had already been disclosed to HMRC in the partners' personal self-assessment returns.

Background 

Mrs Rendall (the Appellant) appealed against penalties imposed on her and her husband, as partners in the partnership of Mr I J and Mrs R I Rendall, for failing to file a partnership return for 2011/12 on time, pursuant to paragraphs 3-5, Schedule 55, Finance Act 2009 (FA 2009).

The Appellant and her husband had been issued with a notice by HMRC pursuant to section 12AA, Taxes Management Act 1970 (TMA), requiring the Appellant, as the 'representative partner', to file a partnership return by 31 October 2012. 

On 12 February 2013, HMRC issued a notice informing each partner that an initial penalty of £100 had been assessed on them for the Appellant's failure to file the return by the due date. On 25 June 2013, HMRC issued a further notice informing each partner that a penalty of £900 had been assessed on them for the Appellant's failure to file the return by a date three months after the due date. HMRC also informed each partner that a penalty of £300 had been assessed on them for the Appellant's failure to file the return by a date six months after the due date. On 11 June 2013, the partnership return was filed with HMRC.

The Appellant argued that she had entered all partnership income and expenses on the individual partners' tax returns, which had been filed with HMRC on time and had not appreciated that that did not constitute a 'partnership return'.

FTT's decision 

All penalties assessed on both partners were cancelled. 

The Tribunal held that there was no reasonable excuse for the failure to file a partnership return on time. The notice sent to the Appellant made it clear that a partnership return was required, using either a form attached to the notice or using commercial software on the internet.  

However, HMRC's decision that there were no special circumstances, for the purposes of paragraph 16, Schedule 55, FA 2009, enabling the penalties to be reduced was flawed. HMRC had not considered or properly taken into account the fact that it had been given, in the individual personal returns which had been made on time, all the information that the partnership return required, including the share allocated to each partner. Nor had it taken into account that a partnership return does not in itself disclose any income chargeable to tax about which HMRC would otherwise be ignorant. 

In the view of the FTT, the intention of paragraph 25, Schedule 55, FA 2009 and section 12AA, TMA, is to encourage timely submission of the amounts of income on which partners in a partnership are to be assessed to income tax. In the circumstances of the present case, the Appellant had complied with those requirements and accordingly the penalties would be reduced to nil.

Comment
 
Whilst this decision will no doubt be welcomed by partnership taxpayers, it is somewhat surprising as it arguably renders partnership returns obsolete if the information is provided to HMRC in an alternative format. In the present case, the partnership was between two spouses who historically shared partnership profits on an equal basis. Application of the decision to larger partnerships with more complex profit sharing arrangements could create practical difficulties for HMRC and therefore it would not be surprising if it was to seek to appeal the decision to the Upper Tribunal.

A copy of the decision can be found here.