Who is Liable to Pay VAT?

A person, partnership or company can register for VAT. Section 9 of the Partnership Act 1890, states: -

'Every partner in a firm is liable jointly with the other partners, and in Scotland severally also, for all debts and obligations of the firm incurred while he is a partner; and after his death his estate is also severally liable in a due court of administration for such debts and obligations, so far as they remain unsatisfied, but subject in England or Ireland to the prior payment of his separate debts.'

HMRC determines which entity will be liable for debt within a partnership, and this is dependent on where the LLP is registered. In this regard, they make take action against the partnership, any of the solvent partners that are liable for any part of the debt, or both the partnership and the solvent partners’ (for example, in insolvency proceedings).

Persons within a partnership will not be able to appeal once HMRC has decided to take action against them, and as such, they will not need to explain their actions. If one partner pays the debt then this releases all the others from it. Any discrepancies regarding which members pay for what portion of the debt afterwards is a matter that you will need to resolve internally.

If a partner leaves a partnership, that partner will still be liable to pay VAT until HMRC receive notification that he or she is no longer part of that partnership. If the partnership ceases trade when a partner leaves then the HMRC will calculate the liability up until that point. It may be necessary for the HMRC to calculate a partner’s liability daily; section 45 (5) of the VAT Act 1994, states:

'Subsections (1) and (3) above shall not affect the extent to which, under Section 9 of the Partnership Act 1890, a partner is liable for VAT owed by the firm; but where a person is a partner in a firm during part only of a prescribed accounting period, his liability for VAT on the supply by the firm during the accounting period or on the acquisition during that period by the firm of any goods from another member State shall be such proportion of the firm’s liability as may be just.'

If HMRC send documents to the partnership after a member's departure, those documents would be deemed as served to the member. (s.45 (3) and (4) of the VAT Act 1994).

In the event that a person is taking action against a partner(s) (in an insolvency proceeding for example), then all action will suspend if a member is challenging the debt.

If you join a partnership that is already in debt and accumulated that debt before you join, you will not usually be liable for the partnership debt. In the event that a partner joins the partnership halfway through an accounting period when the liability incurs, the new partner may be liable in part or in full for the debt.

Partnerships do not pay corporation tax, but rather, the individual partners will pay tax depending on their profit share. At Coddan, our professionally qualified accountants can prepare and submit all tax returns on your limited liability partnership behalf. Minimising tax is a prime financial goal for both businesses and individuals. With the aid of our expert tax advisors’ we can help structure a legal and efficient scheme that will reduce the amount of tax you pay.