Another Partnership Query!

[ScottKR]

My wife has been a sole trader for 2 years and I am about to become a partner in the business as of tomorrow with it being the beginning of the new tax year. I have quite a few questions regarding this.

1. As I do the book keeping, how many tax returns will I be doing next year? Am I right in thinking that I do 1 return for the business and then the profit from there is split between the partners so is essentially the income?

2. If this is the case, would we end up paying 3 lots of tax if we made loads of profit?

3. I'm going to use accounting software so unfortunately have to ask the dreaded question - which one is best for my situation?

I really do appreciate any and all help, thank you!!

 

[MyAccountantOnline]

My wife has been a sole trader for 2 years and I am about to become a partner in the business as of tomorrow with it being the beginning of the new tax year. I have quite a few questions regarding this.

1. As I do the book keeping, how many tax returns will I be doing next year? Am I right in thinking that I do 1 return for the business and then the profit from there is split between the partners so is essentially the income?

2. If this is the case, would we end up paying 3 lots of tax if we made loads of profit?

3. I'm going to use accounting software so unfortunately have to ask the dreaded question - which one is best for my situation?

I really do appreciate any and all help, thank you!!

1. You'll have 3 to do - a partnership tax return and a Self Assessment tax return for yourself and one for your wife

2. No you and your wife will each pay tax based on your income

3. What do you need the software/system to do - do you have any specific requirements and what sort of business do you operate

 

[MyAccountantOnline]

...would we end up paying 3 lots of tax if we made loads of profit?

...

Have you looked at/considered a limited company for your business?

 

[JCresswellTax]

Have you looked at/considered a limited company for your business?

With all due respect, this is going to be a DIY job by the looks of it and will be an even bigger mess via ltd than through a partnership.

 

[MyAccountantOnline]

With all due respect, this is going to be a DIY job by the looks of it and will be an even bigger mess via ltd than through a partnership.

I dont disagree. I should have worded it better and asked the OP if he'd taken professional advice on trading via a limited company.

 

[ScottKR]

I was going all hypothetical with the profit, there's no chance we'd be hitting the VAT threshold this year!

We are basically a manufacturing company.

Ideally I would like the software to be able to track our expenditure as we make a lot of small value purchases from several suppliers and as such, I end up with loads of receipts. I'd also ideally like to track our sales but if I have to keep that on a separate spreadsheet then so be it.

2. No you and your wife will each pay tax based on your income

- I'm a bit confused by this. With my wife being a sole trader, doing the books was easy as all the money in and out as assigned to her and I guess for tax purposes, my wife and her business were essentially one and the same.

If, as the business, we made a sale of £300 approximately a third of this is profit. How does this translate to an income for both partners?

 

[Mr D]

I was going all hypothetical with the profit, there's no chance we'd be hitting the VAT threshold this year!

We are basically a manufacturing company.

Ideally I would like the software to be able to track our expenditure as we make a lot of small value purchases from several suppliers and as such, I end up with loads of receipts. I'd also ideally like to track our sales but if I have to keep that on a separate spreadsheet then so be it.

- I'm a bit confused by this. With my wife being a sole trader, doing the books was easy as all the money in and out as assigned to her and I guess for tax purposes, my wife and her business were essentially one and the same.

If, as the business, we made a sale of £300 approximately a third of this is profit. How does this translate to an income for both partners?

Your income and her income is the profits you each receive.
The partnership profits are split between the two of you according to whatever agreement. It doesn't have to be 50/50 and doesn't have to be set in stone.
So in your example if that was the only income and only expenses that year and you were 50/50 split then each of you would have a profit of £50.

 

[ScottKR]

The partnership profits are split between the two of you according to whatever agreement. It doesn't have to be 50/50 and doesn't have to be set in stone.

So for example, if the business made £30,000 profit and we split it equally, what tax would we be paying? Or more importantly for my understanding, who pays tax?

 

[DWS]

The profit is split in accordance to the partnership agreement, if that is 50/50 then you would both take £15k in partnership profits and include them on your individual tax returns along with any other income you have for the year.
You will both pay tax on your share of the profits.

 

[ScottKR]

The profit is split in accordance to the partnership agreement, if that is 50/50 then you would both take £15k in partnership profits and include them on your individual tax returns along with any other income you have for the year.
You will both pay tax on your share of the profits.

So am I right in thinking that the business doesn't pay any tax then?

 

[DWS]

Yes that is correct, all the partnership does is to find out how much profit/loss there is and this is then allocated to the partners at the agreed percentage who will then declare this on their own tax return

 

[ScottKR]

Yes that is correct, all the partnership does is to find out how much profit/loss there is and this is then allocated to the partners at the agreed percentage who will then declare this on their own tax return

You are a genius and a lifesaver this was the answer that I needed but just couldn't get my head round!!

 

[Chris Ashdown]

Maybe Quickbooks would be worth looking into
https://quickbooks.intuit.com/uk/pricing/