Splitting partnership profits

mjc23

My wife and I started a partnership in Summer 2012. The majority of the physical work is done by myself but my wife performs my duties if I'm sick or unable to make it. She also does the paper work and planning and some emails.

I'm filling out our returns at the moment and if I give my wife a greater percentage of the profits then it would put us both under the tax free allowance so we wouldn't have to pay any. If I split it 50/50 then my wife would be under but I would be just over the tax free allowance so I wanted to split it 60/40 in my wife's favour.

Does anyone have any experience of this and would it be ok to do?

Thanks in advance

zygurat789

mjc23 wrote: »

My wife and I started a partnership in Summer 2012. The majority of the physical work is done by myself but my wife performs my duties if I'm sick or unable to make it. She also does the paper work and planning and some emails.

I'm filling out our returns at the moment and if I give my wife a greater percentage of the profits then it would put us both under the tax free allowance so we wouldn't have to pay any. If I split it 50/50 then my wife would be under but I would be just over the tax free allowance so I wanted to split it 60/40 in my wife's favour.

Does anyone have any experience of this and would it be ok to do?

Thanks in advance

Partnership profits may be split at the discretion of the partners and may change from year tio year

mjc23

Thanks for the quick reply. Looking at it I would put it at 75% in my wife's favour as I had earnings form a previous employment that I already paid tax on.
Therefore HMRC would owe me some money if I only took 25% of the partnerships profits.
Would it look a bit obvious if we switched profits to 50/50% for next year and beyond? Or is that our prerogative to do so without raising suspicion.

nomunnofun

Suspicion or not, as zygurat says, you can split partnership profits in whatever ratio both partners decide. The fact that the other partner is also your wife is irrlevant.

HMRC would indeed owe you money. It would only be good tax planning if you took the necessary steps to maximise this refund.

mjc23

Thank you so much for both of your replies. It's my first year having to do Self Assessments so don't want to do it wrong or do something underhand and get in trouble. Although if it's legal for me to not have to pay tax then I'm obviously keen to take this route!

nomunnofun

mjc23 wrote: »

It's my first year having to do Self Assessments so don't want to do it wrong or do something underhand and get in trouble.

We can presume that you are filling in a partnership return in addition to your individual self-assessments??

mjc23

Yes I've used Andica for my SA800 partnership return but haven't submitted it yet as wanted to make sure the percentage of profits were acceptable and at the most beneficial for me and my wife.
Just was unsure as in theory I probably do a greater percentage of the work.

chrismac1

Agree the previous advice. This is standard stuff and over the past 4 or 5 years some of the partnership % shares within my client base have swung from 0% to 100%. HMRC have never raised any questions about this.

So you have nothing to worry about on this issue.

chrismac1

It's worth adding that it is especially important to file returns on time if a partnership is involved. This is because there are fines per partner for a late partnership return submission.

So for a 2-person partnership where the partnership files a week late, and each individual partner also does, the total fine is 400 not 100:

200 for the partnership return.
100 for partner A
100 for partner B.

So it is even more important to keep a copy of the submission confirmations.

zygurat789

mjc23 wrote: »

Thank you so much for both of your replies. It's my first year having to do Self Assessments so don't want to do it wrong or do something underhand and get in trouble. Although if it's legal for me to not have to pay tax then I'm obviously keen to take this route!

It is fairly easy to get it right. The reason why people use accountants is because they can see the whole picture and present the figures in the best (cheapest taxwise) way for you.
I have seen people get their tax returns right and miss out on fairly sizeable sums because they didn't know any better.

mjc23

Thanks for all your replies, on my SA800 form there is a section on my Partnership statement that says' tick if this statement is drawn up using corporation tax rules.'
Could anyone explain this one for me as i'm unsure if it applies to me.