Inverclyde Property Renovation LLP and Another
| Jurisdiction | UK Non-devolved |
| Judgment Date | 24 June 2019 |
| Date | 24 June 2019 |
| Court | First Tier Tribunal (Tax Chamber) |
[2019] UKFTT 408 (TC)
Judge Ruthven Gemmell WS
Keith Gordon and Ximena Montes Manzano, of Temple Tax Chambers, appeared for the appellants
Ross Anderson, Advocate, instructed by the Office of the Advocate General for Scotland, appeared for the respondents
Limited Liability Partnerships (LLPs) – Business Property Renovation Allowance claims – Whether in accordance with an earlier decision, HMRC had power to open enquiries for LLPs under TMA 1970, s. 12AC – No – Whether in accordance with an earlier decision, closure notices issued by HMRC under TMA 1970, s. 28B were valid – No – Whether enquiry into LLP returns should have been made under FA 1998, Sch. 18, para. 24 – Yes – Appeal allowed.
The First-tier Tribunal (FTT) allowed an appeal against closure notices purportedly issued to LLPs to deny claims for Business Property Renovation Allowance (BPRA). The FTT found that enquiries into LLPs should be opened using the corporation tax provisions, and therefore as HMRC had purportedly opened the enquiries and issued closure notices under the income tax provisions they were invalid.
Inverclyde Property Renovation LLP and Clackmannanshire Regeneration LLP (collectively “the LLPs”) submitted partnership tax returns including claims for BPRA. HMRC purportedly opened enquiries into the returns and subsequently issued closure notices denying the BPRA claims. The notices of enquiry and the closure notices were issued under the provisions applying for partnership returns (TMA 1970, s. 12AC and s. 28B, respectively).
The LLPs appealed on the ground that in accordance with the Court of Session Outer House decision of R (on the application of Spring Salmon and Seafood Ltd) v IR Commrs [2004] BTC 8,108 (SSS), HMRC had no powers to open an enquiry under s. 12AC and, therefore, there was no valid closure notice under s. 28B.
The FTT considered the decision in SSS to be good law and (whether or not bound by the decision, which was disputed by the parties) agreed with Lady Smith that it was “clear” that TMA 1970 was not considering itself part of the Tax Acts. The FTT consequently agreed with the judgment of Judge Thomas in Margott (as representative member of MDL Property Consultants LLP [2018] TC 06278 that TMA 1970 was not part of the Income Tax Acts and that an LLP was not a partnership, that the appellants were not partners, and that the purported notice to file a return given to them was not a valid notice to require a return under TMA 1970, s. 12AA (the FTT distinguished the judgment from the appendix, which it found contradictory). It also considered itself bound by the Upper Tribunal decision in Bartram v R & C Commrs [2012] BTC 1,614, which concluded that “TMA 1970 forms part of what is defined in s. 118(1) TMA as “the Taxes Acts”. However, that does not make it part of The Tax Acts”.
The FTT considered that an LLP was in reality a body corporate in terms of the Limited Liability Partnership Act 2000, s. 1 and accordingly it would be ordinarily subject to corporation tax, however:
- if the statutory deeming in ITTOIA 2005, s. 863 and CTA 2009, s. 1273 applied (because the LLP carried on a trade, profession or business with a view to profit), income and corporation tax was paid as if the LLP was a partnership;
- if the statutory deeming did not apply, income tax and corporation tax paid as if the LLP was a company; but
- in either event, the tax administration provisions applied on the basis that the LLP was a company.
The FTT agreed with the LLPs that an enquiry into the LLPs' returns should have been made under FA 1998, Sch. 18, para. 24 (the corporation tax self-assessment provisions) and if HMRC wanted to challenge the relevant return of any of the LLPs' members, they should have opened an enquiry into those members' own returns under TMA 1970, s. 9A.
The FTT did not consider that the LLPs were personally barred from claiming that HMRC had no power to issue the notice of enquiry or closure notice because: (a) they had made partnership returns; (b) having received notices of enquiry, at least in the case of one of the LLPs had not sought its withdrawal; and (c) having sought closure notices under s. 28B, had appealed the closure notices.
The appeal was accordingly allowed as there had been no valid closure notices issued to the LLPs. The FTT struck the case out pursuant to the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273, r. 8(2)(a)) as the FTT did not have jurisdiction in relation to appeal.
The FTT decided that HMRC's policy of using the legislation applying to partnerships to deal with enquiries into LLPs was wrong. HMRC's practice has probably stemmed from the design of the tax returns, as LLPs carrying on a business with a view to profit are required to complete the standard partnership return. As suggested by Keith Gordon it would be useful if HMRC could design a tax return for LLP members with those who are individuals providing information for their self-assessment returns and for those corporate members and their allocation of the amounts due to corporation tax.
[1] Inverclyde Property Renovation LLP (“IPR”) and Clackmannanshire Regeneration LLP (“CR” and collectively as “the LLPs”) brought, as a preliminary issue, before the Tribunal (“I” or “me”) an amended ground of appeal namely:–
In accordance with the earlier decision of the Court of Session in R (on the application of Spring Salmon and Seafood Ltd) v IR Commrs [2004] BTC 8,108 (hereinafter “SSS”), HMRC had no powers to open an enquiry under TMA 1970, section 12AC and, therefore, there is no valid notice under section 28B.
Legislation – see Appendix 1
Case Law – see Appendix 2
[2] The LLPs' Skeleton Argument dated 25 March 2019 stated that an enquiry into the LLPs' returns should have been made under the provisions of the Finance Act 1998, Schedule 18 paragraph 24 (the Corporation Tax Self-assessment Provisions) and if HMRC wanted to challenge the relevant return of any of the LLPs' members, they should have opened an enquiry into those members' own returns under section 9A of the Taxes Management Act (“TMA”).
[3] The LLPs stated that their case did not rely on any lacuna in the legislation but was a straightforward case of HMRC having followed the wrong procedural course of action and, furthermore, subject to statutory limits, HMRC might still be able to remedy the situation through their powers to make discovery assessments.
[4] The LLPs contend that as a result of the conclusion which HMRC reached in the course of their enquiry, both the Notice of Enquiry already issued under section 12AC TMA and the subsequent Closure Notice issued under section 28B TMA were invalid and the appeals against the notices should be allowed.
[5] HMRC's Skeleton Argument, dated 10 April 2019, stated that the carrying on by a Limited Liability Partnership (“llp”) of a business “with a view to profit” is a requirement for the tax transparent treatment of a llp under section 863 of the Income Tax (Trading and Other Income) Act 2005 (“ITTOIA”) and that the LLPs' principal contention on the merits of the appeal is that they were carrying on business with a view to profit. HMRC's principal contention on the merits of the appeal is that none of the LLPs were carrying on business with a view to profit; the LLPs are thus not to be treated as transparent for tax purposes; and as a result the LLPs, being bodies corporate for the purposes of section 112A of the Corporation Tax Act 2010 (hereinafter “CTA”), ought to have made company tax returns.
[6] HMRC say that having received a partnership return from the LLPs pursuant to notices to file, they were entitled to open an enquiry under section 12A TMA and to issue a Closure Notice under section 28B TMA.
[7] At the outset of the hearing it was noted that the issue of whether or not the taxpayers had been carrying on a business “with a view to profit” had not been established. Had the appeal followed its original course, that matter could have been decided before considering the purely legal issue on this the first, and lowest, rung of the legal appeal ladder for UK tax matters. Accordingly, no assumption could be made for the purposes of this hearing of whether in fact the LLPs had met the “view to profit” condition or not.
[8] The substantive appeal concerns a dispute between the LLPs and HMRC concerning the quantification of the LLPs' claims for Business Property Renovation Allowance (a capital allowance provided for by part 3A of the Capital Allowances Act 2001 (“CAA”)).
[9] The LLPs say that HMRC issued purported Closure Notices pursuant to TMA sections 28B(1) and (2) on 24 February 2017 to IBR and CR in which they denied that claims for Business Property Renovation Allowance (“BPRA”) on two bases:–
- that the LLPs did not carry on a business with a view to profit and their activities are, accordingly, to be treated for tax purposes as carried on by the LLPs themselves and not by their members in partnership (section 863(1) ITTOIA), and
- that the LLPs should be regarded as not having incurred expenditure to the extent that it has been met by a public body (the Capital Allowances Act 2001, section 532).
[10] Partnerships do not pay tax in the United Kingdom but instead their profits and losses are attributable to the partners so that the partners (based on their own individual circumstances) pay tax on their own share of profits or may be entitled to reliefs in respect of their own share of any losses, sections 848 and 850 ITTOIA. The LLPs say that in reality a llp is a body corporate (section 1 Limited Liability Partnership Act 2000). Accordingly, it would ordinarily be subject to corporation tax, (section 1121 CTA).
[11] This, however, is subject to the deeming provisions in ITTOIA section 863 (which apply for income tax purposes) and a corresponding provision in the CTA section...
To continue reading
Request your trial
-
R & C Commissioners v Inverclyde Property Renovation LLP and Another
...valid – Yes – Appeal allowed. The Upper Tribunal re-made the decision of the First-tier Tribunal (Inverclyde Property Renovation LLP [2019] TC 07223), finding that closure notices issued under TMA 1970, s. 28B to the LLPs had been validly issued. Summary Inverclyde Property Renovation LLP a......
-
Odey Asset Management LLP and Others
...which are under appeal in these cases are invalid on the authority of the decision of the tribunal in Inverclyde Property Renovation LLP [2019] TC 07223. In that case the tribunal accepted the argument by certain LLPs that HMRC had had no power to open an enquiry into an LLP's partnership t......