It is important to note that this only applies to genuine ‘partners’ (ie ‘person... carrying on a business in partnership’). It does not apply to salaried partners. Despite that rule of law, HMRC have aggressively pursued salaried partners in the past, usually relying upon the fact that the individual concerned has previously signed Form VAT 2. That is a list of partners for VAT purposes, but it has been used by HMRC as the basis of making salaried partners liable on a subsequent partnership insolvency. However, it is quite clear that this approach is wrong. In Pal [2006] the High Court said that signing VAT 2 did not make an individual liable for tax; it can only be an act that makes someone liable for tax, and in this case it will be those people ‘carrying on a business in partnership’. Since salaried partners do not come within that definition, it follows that they are not liable for tax and thus their having signed VAT 2 does not make them liable.

A useful note in the Gazette suggests that there may be hapless salaried partners who have, in the past, mistakenly contributed to HMRC claims in a belief that they were liable through having signed VAT 2. The question now arises as to whether or not those individuals can seek restitution. See article in [2007] LSG 10 May 23. © Practical Lawyer