Issues

Partnership Tax Appeals: Who Actually Fights HMRC, And Why It Binds You

HMRC amended your partnership return and your tax bill went up—but you're told you can't appeal yourself. Here's why partnership disputes are fought once, by the nominated partner, and bind everyone: the s.12AC enquiry, the s.28B closure, profit-allocation rows, and partnership penalties.

Liam Williams

Liam Williams

— 16 min read
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A letter from HMRC about your partnership has landed, and something does not add up. HMRC has amended the partnership return, your own tax bill has gone up as a result, and yet when you ring to appeal you are told you cannot—that the right to appeal lies with someone else, and that whatever they decide will bind you too.

This is not a mistake. It is how the law is built. Partnership tax disputes are fought once, at the partnership level, by one nominated partner, and the result flows through to everyone. An individual partner cannot run their own parallel appeal against the partnership's figures. Understanding why—and what you can still do—is the single most important thing to grasp before you respond.

This guide is for a partner in a general partnership, or a member of an LLP, who is facing an HMRC enquiry or amendment into the partnership return, a dispute about how the profit is split, a mixed-member or salaried-member adjustment, or a late-filing penalty. We will walk through how a partnership is taxed, who really holds the appeal, and how the substantive fights—over your profit share or your status—actually work.

A quick way to tell which one you are dealing with is to look at the letter. An ordinary enquiry is a section 12AC notice of enquiry addressed to the nominated partner. A status challenge will reference "salaried member" and Conditions A, B and C, or a "mixed member" and section 850C. A penalty is a notice quoting Schedule 55 for a late SA800. And if your complaint is about an allocation row, there is no HMRC letter at all—the split is an internal matter between you and your partners.

How A Partnership Is Taxed

Start with the thing most people get wrong: a partnership does not pay tax. It is tax-transparent. The firm itself is not charged to income tax. Instead, the profit is worked out at partnership level, split between the partners, and each partner pays income tax (and Class 4 National Insurance) on their own share through their personal Self Assessment.

This holds for a general partnership, a limited partnership, and a limited liability partnership (LLP) alike. An LLP carrying on a business with a view to profit is treated as an ordinary partnership for income tax (section 863 ITTOIA 2005). So the corporate-style limited liability of an LLP does not change the tax: the members are taxed personally on their shares.

The machinery has two halves. The partnership makes one return—the SA800 Partnership Tax Return—under a notice to file given by HMRC (section 12AA(2) and (3) TMA 1970). That notice identifies one partner—the nominated (or representative, or reporting) partner—who must make and deliver the return on behalf of the firm. Keep that nominated partner in mind: almost everything that follows turns on them.

The SA800 must include a partnership statement (section 12AB TMA 1970), which shows, for each period and for each partner, that partner's share of the income or loss from each source. In practice this is the SA800(PS) supplementary pages, and it is the document that carries each partner's slice of the profit onto their personal SA100 tax return—the bridge between the one firm-level return and everyone's individual tax.

The Enquiry And The Closure Notice

When HMRC wants to challenge the partnership's figures, it opens an enquiry into the partnership return under section 12AC TMA 1970. The notice goes to the partner who made and delivered the return (the nominated partner), and HMRC must open it within the enquiry window—broadly 12 months after the return was delivered, where it was filed on time. This is the partnership equivalent of the ordinary enquiry and closure-notice machinery that applies to an individual's return, and it runs on the same logic.

There is one feature you need to know about, because it explains why your personal tax is already exposed. Under section 12AC(6), giving notice of enquiry into the partnership return is deemed to include giving notice of enquiry into each partner's own personal return as well (under section 9A TMA 1970, and the company-return equivalent for any corporate partner). The direction runs one way: a partnership enquiry automatically reaches down into every partner's return. You cannot insulate your personal Self Assessment from a partnership enquiry—opening one opens the other.

The enquiry ends with a closure notice under section 28B TMA 1970. HMRC can issue a partial closure notice (settling one particular matter) or a final one. The closure notice states the officer's conclusions and either confirms no change is needed or amends the partnership return—which, in substance, means amending the partnership statement: the figures and the way the profit is split.

Now the load-bearing part. When the partnership statement is amended, section 28B(4) says HMRC must, by notice to each partner, amend that partner's own return "so as to give effect to the amendments of the partnership return." The crucial point is that it is the notice itself that amends your personal return. Your tax bill changes automatically, by a consequential amendment, flowing mechanically from the change to the partnership figures. You do not get a fresh, separately appealable assessment—you get an adjustment that simply mirrors the partnership conclusion.

Here is how that flows through to one partner's bill. Suppose HMRC increases the partnership's profit by £40,000. The partnership statement reallocates that extra profit on the existing profit-sharing ratios, so a partner on a 25% share sees their slice rise by £10,000. The section 28B(4) notice then adds that £10,000 to their own Self Assessment return, taxed at their marginal rate plus Class 4 National Insurance—so a higher-rate partner can be looking at roughly £4,000 or more in extra tax from a single partnership adjustment they never personally agreed to.

Because the consequential amendment creates tax due on your own account, the next question is when you have to pay it. Where there is a related partnership appeal on foot, a partner can apply to postpone payment of the disputed tax under section 55 TMA 1970 until the appeal is resolved—so you are not forced to pay tax that may yet be reduced. Our guide to postponing payment during an appeal explains how that works and how to apply.

Who Can Appeal—And Why It Binds Everyone

Here is the answer to the question that brought most readers here. You cannot appeal the section 28B(4) consequential amendment on its merits. The Upper Tribunal confirmed in Reid & Emblin v HMRC [2020] UKUT 61 (TCC) that a section 28B(4) notice is not a closure notice—it is a freestanding adjustment to your own return, consequent on closing the partnership enquiry. The only thing you can raise against it is an arithmetic or computational mistake: that the figures were copied across wrongly. You cannot use it to re-argue whether the partnership's profit was right in the first place.

So where does the real fight happen? The right of appeal attaches to the partnership conclusion. An appeal lies against "any conclusion stated or amendment made by a closure notice under section 28A or 28B" (section 31(1)(b) TMA 1970). Because there is only one partnership return, made by the nominated partner, and the closure notice is given to that partner, the appeal against the partnership conclusion is necessarily the nominated partner's to bring. The notice of appeal must be in writing, within 30 days of the decision, setting out the grounds (section 31A TMA 1970).

Why does one partner's appeal bind everyone? Think about what would happen otherwise. There is one partnership return, one partnership statement, and one set of conclusions. If every partner could separately re-litigate the same partnership figures, you could end up with five different tribunal answers to the same question—an impossible result. Parliament's design closes that down: the figures are fixed once, by the nominated partner's appeal, and then flow through to everyone via the consequential amendments. A partner who disagrees has to make their case through the nominated partner's appeal, not alongside it.

For the substantive figures, this binds-all effect is structural—it falls out of the machinery (one return under section 12AA, one closure notice under section 28B, one right of appeal under section 31(1)(b)) rather than from a single labelled rule. HMRC states this in its own Enquiry Manual: partnership issues are finalised at partnership level, and no second tier of appeal rights becomes available at partner level. If a non-nominated partner tries to lodge an appeal, HMRC writes back to say the right lies only with the nominated partner.

For penalties, by contrast, the binds-all rule is set out expressly in the legislation—we come to that below.

A closure notice is not the only way the partnership statement can be amended. HMRC can also reopen a year it has already closed by making a discovery amendment to the partnership statement under section 30B TMA 1970—the partnership analogue of an individual discovery assessment. That amendment is appealable under section 31(1)(c) TMA 1970, and the same representative-partner rule applies: the appeal is the nominated partner's to bring, and it binds everyone.

So what can you do if you are not the nominated partner but you disagree?

  • Check the arithmetic. If the consequential amendment to your return contains a computational error, you can object to that.
  • Press your case through the nominated partner. The partnership appeal is the only vehicle for the merits. Make sure the nominated partner runs it, runs it well, and runs it in time—the 30 days clock is unforgiving. If you think the firm should appeal and the nominated partner is dragging their feet, that is a conversation to have urgently, with the partnership agreement in hand.
  • Use the allocation route if your real complaint is the split, not the total. That is a different mechanism, dealt with next.

What if the nominated partner simply will not appeal? Your leverage here is the partnership agreement and the allocation route—not a solo appeal to HMRC. The agreement may oblige the firm to act, or let the partners replace the nominated partner: where the partner who must deal with the return is no longer the right person, section 12AA(11) TMA 1970 lets a successor be nominated by a majority of the partners (or, failing that, identified by HMRC), and that successor can carry the appeal. And if your real grievance is the split rather than HMRC's total figure, the section 12ABZB allocation referral (next section) is your own right—it does not depend on the nominated partner agreeing to anything. Beyond those two levers, the only personal hook left is the arithmetic of the consequential amendment to your own return.

When Your Argument Is With Your Partners, Not HMRC

There is a category of dispute that is not about HMRC at all: you accept the partnership's total profit, but you think you have been allocated the wrong share of it. Maybe the partnership statement gives you 40% when you believe the agreement entitles you to 50%. That is a quarrel between you and the firm (or the nominated partner) over the split, and it has its own dedicated route.

Under section 12ABZB TMA 1970, where a partner disagrees with the partnership return on the share matters, "a party to the dispute may refer it to the tribunal for determination." The First-tier Tribunal is independent, and HMRC is bound by its decision on the split. The referral must be made within 12 months of the day after the return was delivered.

Two limits matter. First, you cannot use this route for a dispute that is "in substance about the amount (before sharing) of the partnership's profits or losses" (section 12ABZB(4))—that is a quarrel with HMRC's figures, and it belongs in the enquiry and closure machinery, not here. Second, the provision applies to 2018-19 returns onwards. So the litmus test is simple: am I arguing about how the cake is cut, or how big the cake is? The first is a section 12ABZB allocation referral; the second is the section 12AC/section 28B enquiry route. HMRC describes this distinction in its Partnership Manual at PM150000.

Partnership Late-Filing Penalties

If your letter is a penalty for a late SA800, here is the sting that catches partners off guard: a single late partnership return generates a separate penalty for every partner.

The penalty for failing to file the partnership return on time currently sits in Schedule 55, paragraph 25 of the Finance Act 2009. Where the nominated partner fails to deliver the SA800, paragraph 25(2) provides that "a penalty in respect of the failure is payable by every relevant partner"—anyone who was a partner during the return period. So one missed deadline does not produce one penalty for the firm; it produces the full penalty ladder charged to each partner individually.

That ladder is the same Self Assessment penalty ladder that applies to a late individual return: a £100 initial penalty as soon as the return is late, then £10 a day once it is three months late (up to a maximum of £900 over 90 days), then at six months and again at twelve months the greater of £300 or 5% of the tax. The sting is the per-partner multiplier: every figure applies to each partner separately. A four-partner firm that is six months late is therefore looking at roughly 4 × (£100 + £900 + £300)—not one penalty for the firm, but the same penalty four times over.

One practical wrinkle: the tax-geared penalties bite by reference to tax due, and there is no tax geared to the partnership itself (the partners pay the tax), so in practice the partnership late-filing penalty is usually the fixed amounts.

The binds-all rule that we met for the substantive figures is, for penalties, written expressly into the statute. Under paragraph 25(4), an appeal against a partnership-return penalty "may be brought only by the representative partner or a successor," and paragraph 25(5) treats that single appeal as an appeal "in connection with every penalty payable in respect of that failure." So the penalty appeal is lodged by the representative partner—one appeal, in writing within 30 days, binding every partner—and the result settles every partner's penalty at the same time. An individual partner cannot appeal their own £100 separately; you do not each lodge your own penalty appeal.

A reasonable excuse is still available as a defence to the penalty in the usual way (Schedule 55 paragraph 23). If there was a genuine, objectively reasonable reason for the late filing—a serious illness, a failure of HMRC's systems, a bereavement—that can defeat the penalty. Our guide to what counts as a reasonable excuse explains the four-step test the tribunal applies.

One forward-looking point. Schedule 55 paragraph 25 is being phased out as the new points-based late-submission penalty regime arrives alongside Making Tax Digital. The textual amendment switches it off "for specified purposes" from 2024 and 2026 under Schedule 27 of the Finance Act 2021, but the new regime is being rolled out by cohort, not flipped on universally. For most partnership filers in 2026, the SA800 penalty still sits under Schedule 55 paragraph 25. It is being replaced on a phased basis—it is not repealed outright—so check which regime applies to your year. Our guide to the new penalty regime explains the points-based system that is coming in.

When HMRC Says Your Profit Share Or Your Status Is Wrong

Beyond ordinary enquiries, two anti-avoidance regimes generate a large share of partnership disputes—because they let HMRC re-characterise how the profit is split or how a member is taxed. If your adjustment is one of these, the fight is over substance, and the facts of your particular firm decide it.

Mixed-Member Partnerships

A "mixed-member" partnership has both individual partners and a non-individual partner—typically a company that is also a member of the firm. The concern is that profit gets routed to the low-taxed corporate member to shelter it from the individuals' higher income-tax rates.

The mixed-member rules (sections 850C to 850E ITTOIA 2005) counter this. In broad terms, where an individual partner's profit has been deferred into a corporate member's share, or where the corporate member's share is excessive and the individual has the "power to enjoy" it, the excess is reallocated back to the individual and taxed on them, on a just-and-reasonable basis. Profit parked in a company member can be pulled back onto the individual's personal tax bill.

The leading case is Walewski v HMRC [2021] UKUT 133 (TCC), the first judicial consideration of these rules. The Upper Tribunal held that profit could be reallocated from the corporate member to the individual even for parts of a period when both were not partners throughout—reading a timing requirement into the statute would be "doing violence to the clear language" and open an avoidance gap. The taxpayer lost. The case also shows that a "just and reasonable" reallocation is largely a finding of fact, which is hard to overturn on appeal: the tribunal's findings can generally only be challenged on a point of law, the gateway examined in our analysis of Edwards v Bairstow.

Salaried Members Of LLPs

The salaried-member rules are the LLP cousin of the IR35 "disguised employment" problem. They stop an LLP being used to give what is really a salaried employee the more favourable tax treatment of a self-employed partner. If they apply, the member is treated as an employee of the LLP under a contract of service, and PAYE and Class 1 National Insurance apply to their reward instead of self-employed treatment (sections 863A to 863G ITTOIA 2005). This is the same substance-over-label battle that runs through our guide to IR35 and off-payroll appeals.

A member is caught only if all three conditions are met—so to stay self-employed, a member needs to fail just one:

  • Condition A: at least 80% of the amount the LLP pays for the member's services is reasonably expected to be "disguised salary"—fixed, or varied without reference to (and not in practice affected by) the LLP's overall profits or losses (section 863B).
  • Condition B: the member does not have "significant influence over the affairs of the partnership" (section 863C).
  • Condition C: the member's capital contribution to the LLP is less than 25% of the disguised salary expected for the year (section 863D).

Condition B is the live battleground, and it is the subject of the most important recent litigation in this area: BlueCrest. In HMRC v BlueCrest Capital Management (UK) LLP [2023] UKUT 232 (TCC), the Upper Tribunal upheld a relatively wide reading of "significant influence"—accepting that the influence in question could be the day-to-day, de facto influence that senior portfolio managers had over the firm. On that reading, members who genuinely ran large parts of the business could escape Condition B.

But the Court of Appeal narrowed it. In HMRC v BlueCrest Capital Management (UK) LLP [2025] EWCA Civ 23, the court held that the parties' agreed approach—that de facto influence counts—was wrong in law. Only influence derived from the LLP's legal and contractual framework (the members' rights and duties under the LLP agreement), exercised over the affairs of the LLP as a whole, qualifies. Both tribunals had erred, and the case was sent back to the First-tier Tribunal.

This area is not settled. The Court of Appeal's narrower test is the current binding authority, but BlueCrest is under appeal to the Supreme Court, where the case has been heard and judgment is awaited. So if your salaried-member adjustment turns on Condition B, the law could shift again. Do not treat the Court of Appeal's test as the final word—it is the current word, subject to a pending Supreme Court decision. (Note also that there is an unrelated BlueCrest case from 2023 about closure notices; the salaried-members line is the [2025] EWCA Civ 23 decision and its predecessors.)

The practical message from both regimes is the same: the outcome is fact-specific to your particular firm. Whether 80% of your reward is disguised salary, whether you genuinely have influence under the LLP agreement, whether profit was really parked in a corporate member—these turn on documents and evidence: the LLP or partnership agreement, the profit-sharing arrangements, capital accounts, and how the firm actually operated. This is the kind of dispute where professional help usually earns its keep.

Does A "Partnership" Even Exist?

Occasionally the very first thing in dispute is whether there was a partnership at all—or who the partners were. A partnership is "the relation which subsists between persons carrying on a business in common with a view of profit" (section 1, Partnership Act 1890). Two points follow. A partnership can exist without any written agreement—if people are carrying on a business in common for profit, they are partners whether or not they ever signed anything. Equally, calling an arrangement a partnership does not make it one. Whether a partnership exists, and who is in it, is a question of fact applying that test—and it is sometimes the threshold issue an HMRC adjustment turns on.

What To Do Now

  1. Identify the nominated partner. Find out who is named on the SA800 as responsible for the return—the representative or reporting partner. They hold the appeal. If that is not you, your route to the merits runs through them.
  2. Check the 30 days clock. An appeal against the partnership closure notice must be lodged in writing within 30 days of the decision. If that window has passed, a late appeal is still possible but the tribunal applies a strict test.
  3. Work out which dispute you actually have. Is HMRC challenging the partnership's figures (enquiry/closure route, section 12AC/section 28B)? Or are you arguing with your partners about the split (allocation referral, section 12ABZB, 12-month window)? Or is it a penalty for a late SA800 (each partner liable; nominated partner appeals for all)? They are different problems with different routes.
  4. Gather the paperwork. The partnership statement (SA800(PS)), the partnership or LLP agreement, capital accounts, and—for a mixed-member or salaried-member adjustment—evidence of how profit was shared and how the firm actually ran. These documents decide fact-driven disputes.
  5. Get professional help for status and allocation fights. Mixed-member and salaried-member adjustments are technical and fact-heavy, and the salaried-member law is currently unsettled at the Supreme Court. A Chartered Tax Adviser or accountant can be engaged for a single piece of work; free help is available from TaxAid (taxaid.org.uk) and the Low Incomes Tax Reform Group (litrg.org.uk).

For the mechanics of lodging the appeal, see our guide to how to appeal to the tax tribunal; for drafting, writing grounds of appeal; and for the big-picture map of your rights, understanding your HMRC appeal rights.

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This article is for informational purposes only and does not constitute legal or tax advice. For advice specific to your situation, consult a qualified tax adviser, accountant, or solicitor.

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