Turning a Sole trader into a partnership?

Kayalana99

Right hopefully you won't judge (at least I'm paying tax tho ey?) I am currently running my Business under my partners name because I am on maternity leave and I shouldn't be working.

So as now its a Sole Trader Ebay business.

Just of late its taking off really well, to the point I may not have to go back to work, but because my partner already works full time I am paying full tax on the business.

Once I come off maternity leave I plan on turning it into a partnership, and I was thinking how that would affect our tax allowance so I gave it a google and it basicly said that any money one person withdraws gets taxed..

My understanding is any profit as a sole trader gets taxed, so it doesn't matter if its in the business account or not..you get taxed.

Now this confuses me as if as a partnership you only pay tax on the money you withdraw, what happens with the money left in the business?

Or have I got this wrong completely?

Laurajo_2

You are taxed on your share of the profit, nothing to do with money you withdraw.

You can decide on what basis you share the profits though.

chrismac1

I'd have thought a limited company was a better option. You could have the Ordinary shares, your partner the A Ordinary. The directors could meet every now and then and decide whether to vote the dividends on the Ordinary shares or the A Ordinary ones....

zygurat789

chrismac1 wrote: »

I'd have thought a limited company was a better option. You could have the Ordinary shares, your partner the A Ordinary. The directors could meet every now and then and decide whether to vote the dividends on the Ordinary shares or the A Ordinary ones....

This usually depends on the profit the business makes, you don't give an amount. Trading as a limited company will cost you more in terms of accountant's fees and, since you are now operating under an additional later of laws, you will be open to an additional layer of penalties.

Your opening post is completely wrong, a partnership looks like two individual sole traders operating together. The division of profit is the crux of the matter as far as the tax situation is concerned.

Kayalana99

Its probably in region of £250 + atm but I hope to get it up to about £450-£600/monthly by April (I only started in Oct to be fair)

To soon for an LTD. I guess basicly if the business made £2000 I fill in a tax form saying I've earnt £2000 and my partner fills in zero ?

nomunnofun

Kayalana99 wrote: »

Its probably in region of £250 + atm but I hope to get it up to about £450-£600/monthly by April (I only started in Oct to be fair)

To soon for an LTD. I guess basicly if the business made £2000 I fill in a tax form saying I've earnt £2000 and my partner fills in zero ?

What would be the point of a partnership in that case? I do see what you are driving at though and, in my view, I would consider receiving a partner's salary (guaranteed share of profits). For example, you receive the first £10000 with the balance split 50-50, or whatever. If the profit proves to be less than £10000, you get it all. If £12000, the split is £11000 - £1000.

This does solve the 'problem' but, as other posters have said, the split is entirely up to you.

Kayalana99

Well its already all set up in my partners name - paying full tax. I suppose I could potentially take over the business as a sole trader again but wouldn't that mess up the books? Wouldn't the 'tax man' if they got involved later down line be suspicious of me finishing mat leave then taking over without actually paying my partner for the business?

I just thought it would be easier to turn it into a partnership, although he wouldn't actually be involved.

nomunnofun

Kayalana99 wrote: »

Well its already all set up in my partners name - paying full tax. I suppose I could potentially take over the business as a sole trader again but wouldn't that mess up the books? Wouldn't the 'tax man' if they got involved later down line be suspicious of me finishing mat leave then taking over without actually paying my partner for the business?

I just thought it would be easier to turn it into a partnership, although he wouldn't actually be involved.

There is nothing wrong with turning it into a real partnership - I would go that route. The business becomes a partnership and you receive all of the money, perhaps in the scenario that I gave in my last post. HMRC will have NO interest in your maternity situation (many carry on businesses in addition to self employment - is this not your husband's position at the moment in HMRC eyes?)

Similarly, if you wish to bring in a partner and charge him nothing, that is your decision. HMRC will not query this.

Laurajo_2

You will need to register with hmrc as a partnership and complete a partnership tax return and a tax return for yourself and your partner.

I actually don't see the point - your OH could just cease the business and you could start up your own, transfer the stock over etc. which would be simplest.