Bankruptcy petition/statement of affairs - LLP income

dd8103

I am trying to help my father fill in his bankruptcy petition and not sure how to categorize some of his income.

He technically has income due from his investment in a film partnership investment scheme which he got mixed up in years ago (currently under investigation by HMRC along with many others). I say technically because he does not actually receive this income as it was all assigned by way of security in favour of the bank which funded his initial investment in the scheme. It is still treated as taxeable income for HMRC's purposes though so has to be declared on the form.

In short, he derives this "income" from his membership (ordinary member) of a limited liability partnership.

This leads to some confusion on the bankruptcy statement of affairs. Section 2 indicates that all details of self-employed income should be included here, including partnership income. We initially thought this was the natural place to include relevant details of this income but the questions that follow in that section are all more along the lines of partnership income which you might receive if operating a business as a partnership - i.e. a trading business.

Including this income here also seems to impact how you complete the debtor's petition (form 6.27). If you fill in the business section (i.e. section 3) of the statement of affairs, you need to select the option in the petition that refers to your principal place of business (i.e. the first limb below). This just seems wrong - this is investment income from a passive investment in a limited liability partnership - he has nothing to do with running the business of the partnership (it is run by two companies, called the "designated members"). There are hundreds/thousands of other similar investors like Dad who are just ordinary members of the partnership.

We are therefore minded to include this as "other" income in section 6.6 and explain full details in the additional pages at the back of the form. I have tentatively done this, cross referring to section 6.6 and section 2. I guess you may also need to refer to this in section 3.11 which asks about "other income". This means you then select the final wording in the petition re: not having carried on business etc.

I did try to ask the Insolvency Service helpline about this yesterday. They said to be careful re mixing up the forms - if you include details in section 2 of the statement of affairs re a business (including partnership) but select the wording in the petition re not running a business they said there was a risk the court would reject the forms.

My concern is that someone will pick up the forms, see a reference to partnership income (regardless of the fact it is just investment income) and say the forms have been completed incorrectly. I am trying to get Dad to take the forms to the CAB before submitting them but not sure they will necessarily be able to advise on something this detailed.

I would be very grateful for any pointers!


I am (f)[not] resident in England and Wales. I am presenting this petition to this county court because within the 6 months immediately preceding the presentation of this petition (f)[I carried on business in England and Wales and for the longest part of the period during which I carried on business in England and Wales within that 6 period of months, the (f)[principal] place of business was situated in the district of (f)[this][……….] county court][I have not carried on business in England and Wales but resided in England and Wales and for the longest part of the period during which I resided in England and Wales within that period of 6 months, I resided in the district of (f)[this][…………] county court]][and in order to expedite the presentation of this petition, I am presenting it to this court as it is the [nearest full time] court (f)[to my [principal] place of business][for the insolvency district in which I reside]].[/B]

Decoctor

As the income has been assigned it is no longer his income for the OR's purposes even though it is still taxable by HMRC. You should reference your dad's LLP status as a partner in the LLP in section 13 only where you need to give details of the partnership and explain the income has been assigned as part of the scheme of the LLP. The OR needs to know about the LLP because on bankruptcy your dad is not allowed to be a partner in a partnership. The OR will need to contact the LLP about this and also liaise with HMRC about the tax liabilities etc. Since your dad is a passive partner in the LLP he does not need to refer to any of this in the Petition itself as this does not add up to a business in which he trades. I'm no expert but I thought the courts have ruled that these partnerships don't work for tax purposes as they don't trade, but that's a separate point.

Decoctor

dd8103

Thanks a lot Decoctor, also not sure of the details but yes this wretched partnership vehicle is being investigated by HMRC because it was clearly all just set up to take advantage of some tax loophole. We had half hoped the whole thing would come tumbling down in the meantime and HMRC declare the whole scheme illegal or whatever but they are taking their time on that front - there have been various threatening letters which the partnership is defending.

Do you also have a view on the following - at the moment, Dad's unpaid tax debt to HMRC is for the tax year 2013-2014 (i.e. for the tax return that he submitted in January this year).

He is yet to do his tax return for the tax year 2014-2015, mainly because he has no money to pay the accountant who did last year's tax return and he does not understand the income streams or accounting structure himself to be able to do it himself. I am trying to see if I can help him do it but the main advantage from my perspective of trying to do the tax return now before the bankruptcy form is submitted is that that tax liability then becomes an unsecured debt owed to HMRC. If you cannot state what you owe in terms of a liability for the tax year 2014-2015 then I don't see how to bring it within the ambit of the bankruptcy and he will be in the same position next year when he is unable to pay the tax due (assuming he has somehow figured out how to do the tax return in the meantime).

Is there any way to just explain all this in the bankruptcy application without actually figuring out how to do the whole tax return?

Any views gratefully received.

Decoctor

Well I'm pretty sure that all debts to HMRC are included in the bankruptcy up until the actual date of BR even if the relevant tax returns have not been completed. You need to say under the heading creditors on the form that the tax return has not been completed but tax is owing. The OR will liaise with HMRC about all this. I suspect your dad will not be required to complete a tax return up to the date of BR if there is no money in the estate and large sums are otherwise owing to HMRC although technically he could be compelled to complete one by HMRC I think. Anyway if your dad is self-employed as from the date of the BR onwards he will be given a new self-assessment UTR by HMRC - this is how HMRC distinguishes between income up to the date of the BR (written off in the BR) and income after the date of the BR (which he will have to pay tax on in the usual way).

Decoctor