sole trader to partnership help!!!

bcopie

For the last few years my wife has been working as a sole trader.

In August 2011 I gave up my job to join the business and we started a partnership.

What I would like to know if anyone can help is two things.

1: When we started the partnership we took on the current sole trader debts of approx £3500 as this was stock related and all stock stayed in the business.
2: Also when we started the partnership we used approx £4000 of personal savings to fund the move into retail premises (and associated costs).

What I would like to know is where and how or even if I can factor these into SA800?

Any help would be much appreciated.

nomunnofun

There are lots of questions to be answered here:

1. When you say that you 'started the partnership' you must be aware that the business itself did not cease. It simply continued under a different format and this is how HMRC treat it.

2. If you joined after the sole trader year end, the closing stock is obviously your opening stock for the new accounting year. If not, as is most likely, the stock remains in the business and there is no problem.

3. The £4000 is shown as cash introduced into the business. If you do not have a balance sheet, this should NOT be included at all in the accounts. Otherwise it is simply shown as cash introduced on the balance sheet.

4. You need to be very careful with the entries on your individual tax returns as basis periods with new partners can be very tricky to understand, particularly where the partner joins at a time other than exactly at the year end. It is quite complicated in any case. For example:

Accounts made to 31st August 2011 when you then join in partnership:

Your partner's tax for 2011/12 is based on profits for the whole year to 31st August 2011.

Your tax for 2011/12 is based on profits for the period from 1st September 2011 to 5th April 2012.

In this example your share on the partnership return will be NIL. Your partner's share will be on the full profits to August 2011 and they must not complete a self-employment page.

I have been doing this for many years, both in and out of HMRC and I still have to think about it.

Be careful!

antrobus

...............................................................

bcopie

nomunnofun wrote: »

There are lots of questions to be answered here:

1. When you say that you 'started the partnership' you must be aware that the business itself did not cease. It simply continued under a different format and this is how HMRC treat it.

2. If you joined after the sole trader year end, the closing stock is obviously your opening stock for the new accounting year. If not, as is most likely, the stock remains in the business and there is no problem.

3. The £4000 is shown as cash introduced into the business. If you do not have a balance sheet, this should NOT be included at all in the accounts. Otherwise it is simply shown as cash introduced on the balance sheet.

4. You need to be very careful with the entries on your individual tax returns as basis periods with new partners can be very tricky to understand, particularly where the partner joins at a time other than exactly at the year end. It is quite complicated in any case. For example:

Accounts made to 31st August 2011 when you then join in partnership:

Your partner's tax for 2011/12 is based on profits for the whole year to 31st August 2011.

Your tax for 2011/12 is based on profits for the period from 1st September 2011 to 5th April 2012.

In this example your share on the partnership return will be NIL. Your partner's share will be on the full profits to August 2011 and they must not complete a self-employment page.

I have been doing this for many years, both in and out of HMRC and I still have to think about it.

Be careful!

Many thanks for taking the time to reply and for such a detailed response.

1+2: Yes no problem, thanks for clarifying think it was just my terminology.

3: I have now spoken to a Tax Inspector who has said the capital introduced SHOULD be included. If there is no balance sheet and turnover is less than £73,000 repayment of CI should be put in under expenses as it is not taxable and acts like a loan repayment. I asked this before I saw your reply so rang again to confirm incase I or they had misunderstood, I recieved the call back this morning that clarified it.

4: I didn't ask both but the first Inspector stated that as the sole trader part of the tax year made a loss and that the partnership had taken these on as well as all stock that I can include the whole business year in the 8 months trading of the partnership all I had to do was allocate any profit or pay proportionally between us (one 12/20 share the other 8/20 share).

Thanks again for your help, I will try and be careful, I've had a headache for about three weeks now!!!! At least next year it should be a lot less complicated with no capital introduced and both of us doing a full year.

Pennywise

bcopie wrote: »

3: I have now spoken to a Tax Inspector who has said the capital introduced SHOULD be included. If there is no balance sheet and turnover is less than £73,000 repayment of CI should be put in under expenses as it is not taxable and acts like a loan repayment. I asked this before I saw your reply so rang again to confirm incase I or they had misunderstood, I recieved the call back this morning that clarified it.

If a tax inspector has said that, it explains why HMRC are in a mess. It's complete rubbish what you've been told.

If you put it down under "expenses" then it is a tax-deductible expense which is wrong. A loan repayment doesn't go on the expenses - it's only interest that does.

Just to confirm, neither your capital introduced nor any drawings/repayments will go anywhere near the income/expenses boxes on your tax return, either for the sole trader nor the partnership. They're balance sheet items which don't affect tax - as you don't have a balance sheet, you don't include them at all on your tax return.

nomunnofun

bcopie wrote: »

Many thanks for taking the time to reply and for such a detailed response.


3: I have now spoken to a Tax Inspector who has said the capital introduced SHOULD be included. If there is no balance sheet and turnover is less than £73,000 repayment of CI should be put in under expenses as it is not taxable and acts like a loan repayment. I asked this before I saw your reply so rang again to confirm incase I or they had misunderstood, I recieved the call back this morning that clarified it.

4: I didn't ask both but the first Inspector stated that as the sole trader part of the tax year made a loss and that the partnership had taken these on as well as all stock that I can include the whole business year in the 8 months trading of the partnership all I had to do was allocate any profit or pay proportionally between us (one 12/20 share the other 8/20 share).

QUOTE]


I am speechless!

Suarez

Pennywise is correct and what you have been told by HMRC is a load of rubbish! :eek: