Changing from partnership to sole trader problems

abimonster02

Hi

I am trying to sort out changing the businees i run from a partnership to a sole trader but the other "partner"( my ex) in the business hasn't completed a tax return so was told until they had i couldn't switch the registration over. Is there anything I can do about this as he hasn't had anything to do with the business for 2 years.

Thanks for any advice/ help you can give.

chrismac1

Some options:

1. Simply share the income 0% and 100% to you on the returns. In effect this is the same as being a sole trader in tax terms.

2. Tick the box on the tax return saying the partnership has ceased trading and give the date. From then on file sole trader tax returns, the sole trader business having started the day after the partnership ceased.

Note that it is far from unusual to get tax return requests for clients - including partnerships - for one or two years after they have ceased trading. So keep a copy of the return you file and double check the "ceased trading" box is checked as this can potentially enable you to quickly rebut fines levied in error.

laticsforlife

Its worth mentioning that there are two sets of returns involved here, the partnership one and each partners individual one.

You send in (at least I presume its you and not your ex) the partnership return and in it you say that taxpayer 1 (you) has £x share of profits, and that taxpayer 2 (your ex) also has £x share of profits. Thats it. That return does not in itself create any tax bill; you then return the share on your own individual tax return and are taxed accordingly.

It is up to your ex to do the same (not the partnership one but her own individual return), and I would suggest sending her a copy of the partnership return for her own tax return purposes.

A partnership is what is known as transparent for tax in that it is the partners who pay the tax through the profits of the partnership, not the partnership itself.

Chrismac1 correctly says that all you do is put the cessation date on your partnership return and then do your own sole-prop accounts in future and return those on your individual tax return, and unless you dissolved it on the 5th April then you will report both on one tax return (i.e. partnership to Dec 31st, sole trade from Jan 1st for example) - 2 seperate pages to complete on the tax return, sorry.

jimmo

In my days as a taxman I saw far, far too many cases of divorces and separations where the former loving couple were not able to talk to each other resulting in them both paying solicitors and barristers huge sums of money but leaving both parties penniless and homeless but maybe thinking they had achieved a moral victory.

Add that to the advice you appear to have received from HMRC and, quite frankly, you have a recipe for disaster.

You have to get the basics right. HMRC very definitely cannot dictate to you that a partnership still exists. If the (business) partnership ceased to exist 2 years ago that is a fact.

If you then continued to run the business as a sole trader that is a fact.

HMRC will, perhaps understandably, not be happy to close their records for the partnership until all the related Tax Returns have been completed but that doesn’t alter the basic fact that the partnership ceased to exist.

For each tax year HMRC requires 3 separate Tax Returns:

1) A partnership Return to declare the partnership profit and to allocate the profit between the partners.

2) A personal Return for you to declare your share of the partnership profit and any other income.

3) A personal Return for your ex to declare his share of the partnership and any other income.

Take these one at a time.

1) The partnership Return requires a declaration of partnership profits but, from the date that the partnership ceased to exist, the income was nil and the profits were nil and a nil Return is all that is required.

2) In your personal Return you need to declare your share of the partnership profits as well as any other income including any profits generated by your sole trader business following the cessation of the partnership.

3) Your ex needs to declare his share of the partnership profits as well as any other income but that is none of your concern. That is his business.

If you can come to terms with what I have said you will understand that HMRC cannot dictate when, or if, your partnership ceased. That is a question of fact.

HMRC can issue all the Returns it wants but if you get a partnership Return covering a tax year after the partnership ceased to exist the correct Return is a nil Return but you will have to make it.

If your ex does not complete his personal Returns that will be his problem, not your’s as long as you continue to make nil Returns for the partnership for as long as HMRC choose to issue partnership Returns.