Formation of Partnership in UK Law

If an employer is squeezing out an employee, or a partner is conducting himself in such a way as to make it impracticable to carry on in business with him, this may well be enough even if it is not easy to point to a specific act.

In the current (eighteenth) edition of Lindley & Banks on Partnership, the topic of "partnership shares" is dealt with in Chapter 19. Lord Lindley's "classic definition" is quoted in paragraph 19–05. He said that "the share of a partner is his proportion of the partnership assets after they have been all realised and converted into money, and all the debts and liabilities have been paid and discharged."

While each partner has a proprietary interest in each and every asset, he has no entitlement to any specific asset and, in consequence, no right, without the consent of the other partners or partner, to require the whole or even a share of any particular asset to be vested in him.

Where relief has already been given in error, it would in my view be open to HMRC, in completing an enquiry, to amend the return (for example, under section 28A(2) TMA) by altering the amount chargeable to income tax for Year 2 in order to recover the sums which were wrongly paid as relief. Thirdly, section 59B(5) provides for payment of income tax which is payable as a result of an amendment of a self-assessment under section 28A on completion of an enquiry into a personal tax return.

Fifth, such a trust is akin to a "retention of title" clause, enabling the recipient to have recourse to the payer's money for the particular purpose specified but without entrenching on the payer's property rights more than necessary to enable the purpose to be achieved. It is not as such a "purpose" trust of which the recipient is a trustee, the beneficial interest in the money reverting to the payer if the purpose is incapable of achievement.

It is also immediately plain that the tax avoidance scheme, if it worked, would be singularly attractive to any person in the position of the Claimant, that is, any resident of the UK who, as a self-employed person, carried on a trade or profession here.

The important thing to ascertain is the meaning of the word "person" in the vocabulary of the Income Tax Acts. Justification is thus not wanting for the view expressed by Lord Justice Romer that for taxing purposes "a partnership firm is treated as an entity distinct from the persons who constitute the firm."