Sword Services Ltd & Ors v HM Revenue & Customs

Schedule 32 to the Finance Act 2014 applies to limited liability partnerships as well as general partnerships. The statutory words must be read in their legislative context and in light of the purpose of the accelerated-payment regime.

A notice of enquiry under section 12AC of the Taxes Management Act 1970 need not follow a prescribed form. Written communications are sufficient if they inform the taxpayer that HMRC is enquiring into the relevant partnership return. A taxpayer which failed to identify the filing partner in the return could not rely on that failure to invalidate notices of enquiry where the partnership and its authorised agent knew of the enquiries.

The claimants, members of general and limited liability partnerships established by Future Capital Partners, sought judicial review of Partner Payment Notices issued under Schedule 32 to the Finance Act 2014.

They argued that Schedule 32 did not extend to limited liability partnerships. They also argued that the notices concerning GPs 6–7 and LLPs 4–7 were invalid because HMRC had not served valid notices of enquiry on the partner who made and delivered the relevant partnership returns.

Picken J had granted permission on the statutory-construction issue and on the enquiry issue concerning those partnerships. The central questions were whether Schedule 32 applied to LLPs and whether a tax enquiry was in progress for the purposes of the statutory precondition.

The judicial review was dismissed.

1. Application to LLPs. Schedule 32 to the Finance Act 2014 applies to both general partnerships and limited liability partnerships. The ordinary meaning of “partnership” and “partners”, the structure and purpose of the accelerated-payment regime, and the statutory context all supported that conclusion. Parliament could not sensibly have intended the regime to apply to ordinary partnerships used in avoidance schemes but not to LLPs used for the same purpose.
2. Schedule 32 is closely connected with sections 12AA–12AC of the Taxes Management Act 1970. Those provisions are in pari materia and contain no distinction between ordinary partnerships and LLPs. The treatment of LLPs in the Corporation Tax Act 2009 did not control the construction of Schedule 32.
3. Notices of enquiry. Section 12AC(1)(a) requires the taxpayer to know in writing that HMRC is conducting an enquiry. It prescribes no particular form. The approach in Flaxmode Ltd v Revenue and Customs Commissioners [2008] STC (SCD) 666 was correct.
4. The partnerships had failed to identify the relevant filing partners in the returns, contrary to section 12AA(6) of the Taxes Management Act 1970 and the applicable electronic-filing requirements. They could not rely on that failure to complain that HMRC had not addressed notices to those persons.
5. In any event, HMRC’s correspondence, courtesy notices and dealings with the FCP group gave the partnerships and their authorised agents actual knowledge of the enquiries. FCP had actual authority to administer the partnerships’ tax affairs, and notice to FCP was notice to its principals. The statutory requirement was therefore satisfied.

This was a first-instance judicial review. In R (on the application of Sword Services Ltd) v Revenue and Customs Commissioners [2015] EWHC 3544 (Admin), Picken J granted permission on the issue whether Schedule 32 applied to LLPs and on the validity of the relevant notices of enquiry. The human-rights issue was adjourned pending consideration of related authority.