Former partners in King & Wood Mallesons' (KWM) failed European and Middle East operation are facing further delays in finding out whether they are eligible for a tax rebate from HM Revenue & Customs, as it emerges that many have received penalty notices from the tax department.

Ex-partners in the legacy SJ Berwin business received an email last month stating that individual tax loss allocations – which can be used to offset the failed business's losses against tax either owed or paid on individual earnings – need to be recalculated following a series of mistakes.

The email from former European managing partner Tim Bednall, seen by Legal Week, also states that while a new appeal against penalties for late filing of the LLP's tax return has been lodged, partners face interest accruing on the outstanding penalty amounts if they choose to wait for the outcome of the appeal before paying.

The email represents the latest in a string of setbacks in allocating losses.

Some former partners had previously been told their individual allocation, but according to Bednall's email,  "a number of errors " mean the allocations need to recalculated.

The email states that errors included a handful of eligible partners being missed out when losses were allocated, and Deloitte initially making the allocations based on former partners' equity share, rather than also including outstanding tax reserves held in the business at the time of its collapse that had not yet been paid into HMRC.

The revised allocations are expected to be completed and distributed by the end of August according to Bednall, with the aim of distributing any potential rebate against tax already paid from earlier years " before Christmas". The losses can be used to offset against tax still owed to HMRC by partners or clawed back against payments already made.

Depending on the size of any refund from HMRC, money left over after anything owed to partners on tax could have gone towards repaying them for other capital held in the business at the time of its collapse, however this is no longer expected to happen.

One former partner said: "Notionally the money clawed back could be paid to some or all partners as determined by the board, but to avoid any nastiness the board adopted a scheme to divide this equitably by reference to who had lost the most. So anyone badly out of pocket because of unpaid income tax should be made whole, and if there's any left over it will be paid against other losses (capital, unpaid drawings etc). But this is unlikely now."

KWM's Europe, UK and Middle East arm filed for administration in January last year after years of turbulence, late profit distributions and partner exits. The China firm maintained a small presence in London and Europe, registered as KWM Europe LLP.

The appointment came as the firm prepares to move into new offices on the 11th floor of 20 Fenchurch Street – better known as the 'Walkie-Talkie' building.

Deloitte, Bednall and KWM declined to comment.