Dive with caution…Partnership income or employment income

Jun 6, 2022
Aaron is one of our tax partners, Aaron specialises in R&D Tax Relief, VAT, Trusts, Corporate Tax, Business Tax and Capital Gains Tax.
diving tax income

In Corrigall [2022], The First-tier Tribunal (FTT) found that earnings from diving could not be treated as income from a partnership.

The appellant in this case was employed as a gas and air diver for UK and international companies. The appellant, however treated his UK employment income as trading income of a partnership split between himself and the other partner, being his spouse.

Therefore, he only reported 50% of this income on his tax returns. This led HMRC to opening an enquiry into the submitted tax returns and subsequently giving notices to the conclusion that all UK employment should be treated as 100% income of the appellant and not partnership income.

The appellant’s argument against this was that ITTOIA 2005, section 15 reclassifies employment income of a diver as trade income and that on this basis the income of such a trade should be taxed on the owners of the trade being him and his wife.

The appellant argued that because HMRC had allowed for expenses such as spouses wages against the diving income that this meant the appellant was trading with a view to a profit with his wife in relation to all of the diving income. Furthermore, because a partnership tax return and accounts were filed with HMRC, he argued that the existence of a partnership had been established.

Nonetheless, the FTT concluded that there had to be evidence that the partners were indeed trading with the view to make a profit and as such the partnership returns and accounts were not sufficient evidence.  Further, upon reading ITTOIA 2005 section 15, it refers to a trade of the employee only, the language used does not extend the meaning to include a trade owned by another person, in this case as partnership income.

The FTT found that the appellant was the sole employee and thus his tax returns needed to reflect 100% of the income from diving which would be taxed as trading income under S15 ITTIOA 2005

In similar cases such as Puttnam [2019], the FTT came to the same conclusion. The application of ITTOIA 2005, section. 15 merely describes the manner in which employment income is taxed and does not change the legal characteristics. Therefore, trading income carried out solely by one diver cannot be regarded as partnership income.

Therefore, please check with your tax advisor before you take that dive.


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