Partnership

[JamieAllen]

Hi

Setting up partnership with my wife, registrations in place etc as self employed. Looking at accountants now.

Before we formally agree the profit split is there anything I need to consider in terms of tax planning? Any way of minimising tax for a married couple in partnership? Don't expect there is other than the usual expenditure stuff such as claiming home as office etc. The wife has part time job also so both personal allowances will be utilised.

Cheers.
Jamie

[Blackberry]

Hi Jamie

Good luck with the partnership, the accountant you appoint should be able to best advise on profit sharing and tax planning.

Make sure you appoint one you feel comfortable with, not necessarily the cheapest, there are many accountants on here who i'm sure would be happy to help you out

[JohnGreer]

Hi Jamie,

A few things spring to mind that you may wish to consider:

1. Profit share - you don't have to fix your profit share percentage within your partnership agreement (such as 50/50 or 60/40 etc), you can have a phrase such as "profits will be split by agreement between the partners according to performance" or something similar. That way you can retain a degree of flexibility in allocating profits between you. (E.g in one year perhaps your wife may have other income and it would be beneficial for you to take most of the profit from the partnership, the above gives you the mechanism to achieve that).

2. AIA - the Annual Investment Allowance: This is relatively new rules regarding how equipment etc that you buy is treated. In essence the first £50k worth of equipment (per year) is written off in full against your profit. This can bring significant advantages where, for example, equipment is bought on HP or similar finance. Take for example a new van bought for say £20k (on HP) on the last day of your trading year. You would get full relief for the whole £20k in that year even though you will be actually paying that sum of money over the term of the agreement (perhaps 3 - 4 years?). Its one of the few times where you can obtain tax relief in advance of actually spending the cash!

3. 1st year losses - if you purchase a lot of equipment in the first year then the AIA relief may actually reduce your profit into a loss. If that occurs make sure that the loss is offset against your highest taxed source of income possible. (So for example if either your wife or yourself had a job where you have paid 40% tax, the loss can be offset against that employment income and the tax reclaimed).

4. Tax credits - Don't forget about tax credits. If your income is low in the early years of trade you may qualify for tax credits, its certainly worth checking

5. Claim all legitimate business expenses and keep good records (obvious I know!)

Hope there's some useful pointers there!

Best wishes

John

[Wild Goose]

One very real lookout is the income shifting legislation, which has been put into place by Fat Gordon to scupper the sort of arrangement you are planning whereby your wife (or life partner) takes a share of your income as a tax saving device.

Fine if she really is involved in the business; either because she performs or has taken a share in the financial risk, or both. There are other factors and considerations, such as her part-time job for instance; or her exact role in the partnership (which might range from the same level as you as eg an IT expert, to menial clerical work at the lower end). Each case tends to get judged on its merits - professional advice from a tax-savvy accountant is essential.

[oldeagleeye]

quote

the usual expenditure stuff such as claiming home as office etc

Be very careful. If you designate a room in your house for example you could be liable to capital gains tax on that portion of the house when you come to sell. Again speak to an accountant. Personally I would stay completely away from complicating matters. My office is a 'shed' in the garden and I just rent myself the shed not the ground it is on and when I come to sell it will be gone.

Reminds me. Must check out how well that old 486 desktop is rusting in the apple shed one of these days.:D

[elainec100@cheapaccounting]

One very real lookout is the income shifting legislation, which has been put into place by Fat Gordon to scupper the sort of arrangement you are planning whereby your wife (or life partner) takes a share of your income as a tax saving device.



Note - HMRC lost the case on this and whilst new laws have been promised nothing has changed yet. Something to keep an eye out for but nothing in place to stop you doing this as we stand.

quote

the usual expenditure stuff such as claiming home as office etc

Be very careful. If you designate a room in your house for example you could be liable to capital gains tax on that portion of the house when you come to sell.

Easy to stop this happening - you use a room for part of the time only. Never assign fully to the business.

Can I ask - why a partnership and not a limited company?

[JamieAllen]

Thanks all for your replies.

Elaine - couldn't get limited company bank account. Banks wouldn't touch me with a barge pole as the business is property development.

[oldeagleeye]

Jamie.

My buddy just left Natwest. They do a completely non-status company bank account. He did one a short while ago. The guy had £50K of CCJ's against him. Needless to say. No cc or cheque guarantee card just a hole in the wall debit card or if you want too - Internet banking.

Hope the info helps.

BTW folks. Don't know if you know it but the Halifax now dropped all reference to BOS at the branches and all BOS business mangagers now seconded from Lloyds. What fun that will be. Lloyds still hasn't completed it's almagamation with TSB yet after all these years.