Cash basis of accounting was not available

The taxpayers traded in partnership during the years 2011-12 to 2014-15.

Part of the partnership’s business was to provide consultancy services to family companies wholly or partly owned by the taxpayers. However as the companies were still in development no payment was made for the services – the taxpayers expected to be paid once the companies became successful. These transactions were referred to in the partnership accounts as ‘proforma invoices’

The taxpayers considered they could make up the partnership accounts using the cash basis of accounting as the proforma invoices had not been paid and were not expected to be paid for some time. They did not file tax returns for 2011-12 to 2014-15.

HMRC raised discovery assessments for the years 2011-12 to 2014-15 against which the taxpayer appealed.

The First-tier Tribunal said the partnership could not use the cash basis of accounting for 2011-12 and 2012-13 because it...