UK case on partner/employee distinction

Jospeh Puttnam v Commissioners for HMRC [2019] UKFTT 389 (TC)

The appellant treated the income from his engagement by a diving company as trading income of a partnership with his spouse, and so declared 50% of that income as his share of the partnership profits for tax.

The tribunal agreed with HMRC that he was an employee and that the income from his contract was not income of a partnership but his own income. It ruled that s15 ITTOIA 2005, which stated that the “performance of the duties of employment [of a relevant diver] is … treated for income tax purposes as the carrying on of a trade in the United Kingdom” applied for income tax only and could not be interpreted as meaning that the employment should be treated as a trade which was separate to the diver and capable of being owned and carried on by another person, or by persons in common under partnership law. The only person who could be regarded as “carrying on a trade” within the meaning of s15 was the individual “performing the duties of the employment”, and so his employment income could not be regarded for tax purposes as trading income of a partnership in which he was a member. Although expenses could be deducted if they met the criteria to be deducted as expenses of the deemed trade, this did not mean that an actual trade capable of being carried on in partnership existed.

The tribunal cited the approach set out in Ready Mixed Concrete (SE) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497, 515, to determine whether an employment existed:

“A contract of service exists if these three conditions are fulfilled.

  • The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master.
  • He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master.
  • The other provisions of the contract are consistent with its being a contract of service.”

It considered that there was mutuality of obligation during each assignment, no right of substitution, and control by the diving company over the work undertaken by the appellant. Other relevant factors included the appellant’s entitlement to paid leave and sick pay, and the statement that the contract was one of employment, although that was not definitive. The tribunal therefore concluded that the relationship was one of employment and not a trade capable of being carried on in partnership.

Finally, the tribunal held that whether there was a partnership was largely irrelevant because the appellant’s activities did not amount to a trade which could be carried on by that partnership, and his employment could not be regarded as income which could be attributable to the partnership for tax purposes.  However, it explicitly rejected the appellant’s argument that that Protectacoat Firthglow Ltd v Szilagyi [2009] EWCA Civ 98 implied that it was possible to have a valid partnership in which the partners entered into employment contracts with a client. The decision in Protectacoat referred to the possibility of the partners each being engaged as employees: it did not, even in obiter dicta, find that the partnership itself could be engaged as an employee. It was well established that employment required personal service and so could not be undertaken in partnership. The tribunal also rejected the appellant’s argument that if the engagement with the diving company was not with the partnership, then he was required by s30 of the Partnership Act 1890 to account to the partnership for the profits made. Section 30 only obliged a partner to account for profits earned without consent in carrying on a business of the same nature, whereas the appellant was employed rather than carrying on a business.

Summary of US partnership and quasi partnership vehicles

There is a useful article on Lexology discussing different types of partnership and quasi-partnership structures - such as LLCs - in the USA. It is another in the Lexology series summarising different types of partnerships in a particular countries 

The article is entitled 'Partnerships in USA' and is authored by lawyers at US law firm ES&A. 

It is at

(if you need to subscribe to Lexology to access it, it is free do do so - see further

New short article on partnership property and accounts

A short article commenting on the judgment in the Kingsley case (noted in an earlier post ‘New case on partnership property and accounts’) has been published:
Katie Alsop, ‘Deeds not words’ (2019) 211(Nov) Trusts and Estates Law & Tax Journal 16

New article on quasi-partnerships in the UK by Professor David Milman

Those of you who attended the Partnership Forum Conference earlier this year will recall David's excellent analysis of so-called 'quasi-partnerships'. He has now published an article based on this research:

David Milman,‘Legal characterisation of commercial relationships in the UK: the quasi-partnership example' (2019) 40(10) Company Lawyer 312

Summary of UK partnership vehicles

For anyone not already familiar with basic UK partnership structures, this article - another in the Lexology series summarising different types of partnerships in a particular countries - will be useful.

The article is entitled 'Partnerships in United Kingdom' and is authored by lawyers at one of the UK's leading law firms specialising in partnership law. 

It is at

(if you need to subscribe to Lexology to access it, it is free do do so - see further

Useful summary of French partnership law

There is a useful article on Lexology by the French law firm Philippe Derouin summarising different types of partnerships in France.

The article is creatively entitled 'Partnerships in France'  and is at

(if you need to subscribe to Lexology to access it, it is free do do so - see further

Summary of Greek partnership law

There is a useful article on Lexology by Cocalis & Partners summarising different types of partnerships and other business vehicles in Greece.

The article is titled  ‘Commercial corporate entities: a brief outline’ and is at

(if you need to subscribe to Lexology to access it, it is free do do so - see further

Recent article on Chinese partnership law


Lin Lin, 'Private Equity Investor Protection: Conceptualizing Duties of General Partners In China' (2018) 15(1) Berkeley Business Law Journal 43-91

Proposed legislative changes to the Irish Investment Limited Partnership

Update on proposed legislative changes to the Irish Investment Limited Partnership by the Investment Limited Partnerships (Amendment) Bill 2019 available at:

The text of the Bill itself, and a summary of its legislative progress, is available at:

New UK case on LLP member's duties

Riley v Reddish LLP, 7 June 2019, unreported

The appellant had been a member of an LLP which had acquired shares in a company.  He was sued by the seller of the shares for the purchase price of £1.3 million. The court held that the LLP was liable for the purchase price, but it went into liquidation and was unable to pay.  The LLP then sued and obtained judgment against the appellant for the purchase price. The appellant’s claim to have his judgment set aside on the grounds that he had refused service of the claim form and the particulars of claim was rejected.

On appeal, the court held that although the LLP had alleged that the appellant was a director who had breached his duties under the Companies Act 2006, LLPs did not owe fiduciary duties under that Act, and directors’ duties could not be transposed on to LLP members. Whether an LLP member owed duties depended on his role in the LLP affairs (see further F&C Alternative Investments v Barthelemy [2011] EWHC 1731 (Ch)). Here there was no evidence of any agreement about his role, and it was therefore not possible to establish that he was in breach of duty.  Since there was a reasonable prospect that he would be able to defend the claim, the court exercised its discretion under the Civil Procedure Rules (CPR) r.13.3 to allow the appeal and set aside the judgment against him.  The court noted that refusing the appeal would have meant imposing a substantial liability on the appellant as punishment for refusing to accept service of documents, which would be disproportionate.



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