General Partnership declaring profits vs drawings

andrew_tovey87

Hi all,

In our first year of a general partnership (50/50 split), and the accounting year comes to an end in line with the tax year. In terms of assessment forms we need to complete (partnership and self assessment), we're fine with that, but my question was around what needs declaring where, depending on what we're drawing.

So for example, if by the end of the accounting year we've made £1000 profit, we'd both get £500 each based on the 50/50 split. If we chose not to actually draw any of this out (leave it in the business account), then would Mr Tax Man still want the £500 declaring on the self assessment submission, even if we haven't drawn it (to still get his tax)? Or is it the case that at the time that we do with draw it, is it only at that point that we declare it on our self assessments i.e. we could just leave the money undrawn in the business account without it being subjected to corporation tax, and then we only declare it once drawn?

Thanks

tacpot12

A Parnership does pay corporation tax. The profit the partnership makes is split between the partners, who then pay income tax on their share of the profit. So you don't have the option to leave profit in the partnership; the moment the partnership makes a profit (so at the end of the partnership's tax year), the profit that has been made is passed to the partners for them to pay tax on. How much they receive in cash (as drawings) is up to the partners, but it makes sense to draw any money not required to develop the partnership, as you will be paying tax on it anyway.  

andrew_tovey87

@tacpot12 Thanks for the response, makes sense. So even if we draw £0, we still pay our personal income tax on our 50% share of the profit (not drawings), but I do get your point on if we've paid tax on it, then we may as well draw it