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  • FIRST POST
    • Rugby-Fan-180
    • By Rugby-Fan-180 9th Jul 18, 9:38 AM
    • 3Posts
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    Rugby-Fan-180
    Sole trader - Split the business?
    • #1
    • 9th Jul 18, 9:38 AM
    Sole trader - Split the business? 9th Jul 18 at 9:38 AM
    Hi all,

    I'm full time employed and also run a sole trader business.

    I'm close to hitting the higher tax band.

    Is it legal to split the business in half, so my wife has a sole trader business and I keep mine.

    Say the business is currently selling building supplies.... if we split it:
    My business would be for Tools.
    My wife's would be for building materials (Sand etc.)

    Both business would likely have the same customers.
    I just want to make sure that this is a legal way of trying to keep from hitting the dreaded 40% bracket.

    Thanks.
Page 1
    • Pennywise
    • By Pennywise 9th Jul 18, 9:51 AM
    • 10,326 Posts
    • 19,254 Thanks
    Pennywise
    • #2
    • 9th Jul 18, 9:51 AM
    • #2
    • 9th Jul 18, 9:51 AM
    Splitting a business is fraught with problems, especially if you have common customers, suppliers and it's a similar trade, as HMRC may deem it as artificial.

    A far easier solution is simply to form a partnership with your wife. Then you can share profits in any proportion you wish, enabling you to allocate enough profits to her to keep you out of the higher rate band.

    If you're worried about risk/liability, i.e. business failure, injury claims, compensation, etc., then set convert it to a limited company instead where you and your wife are both directors/shareholders, again to split the profits etc in a way that suits you.

    Why not have a chat with your accountant about both options as there are pros & cons of each and you need their guidance as to which will suit your circumstances best.
    • Rugby-Fan-180
    • By Rugby-Fan-180 9th Jul 18, 11:10 AM
    • 3 Posts
    • 0 Thanks
    Rugby-Fan-180
    • #3
    • 9th Jul 18, 11:10 AM
    • #3
    • 9th Jul 18, 11:10 AM
    Thanks for the reply.
    I'm slightly embarrassed to say I had no idea there was such a thing as a 'Partnership' setup.
    This could be ideal. Is the tax payable split equally between both? (If the arrangement is based on a 50/50 split).

    Currently all the accounts work is done by my wife (she works in accounts full time).
    Maybe we need to get someone in for some professional advice.
    • Pennywise
    • By Pennywise 9th Jul 18, 11:36 AM
    • 10,326 Posts
    • 19,254 Thanks
    Pennywise
    • #4
    • 9th Jul 18, 11:36 AM
    • #4
    • 9th Jul 18, 11:36 AM
    Thanks for the reply.
    I'm slightly embarrassed to say I had no idea there was such a thing as a 'Partnership' setup.
    This could be ideal. Is the tax payable split equally between both? (If the arrangement is based on a 50/50 split).

    Currently all the accounts work is done by my wife (she works in accounts full time).
    Maybe we need to get someone in for some professional advice.
    Originally posted by Rugby-Fan-180
    You can split the profits in any way you wish and the tax payable follows on from that split. To optimise it, you'd also have to consider NIC - a straight 50:50 is often not the best outcome, ideally it should be reviewed each year and the numbers crunched.

    Partnership accounts/tax returns are more complicated than a simple sole trader set up. I'd suggest you get an accountant on board for advice such as this, and also to do the accounts preparation and tax return submissions. The ideal scenario is for your wife to continue with the book-keeping and for the accountant to do the more complex yearly accounts and tax returns - that way you're not paying an accountant for the simple book-keeping work.
    • Rugby-Fan-180
    • By Rugby-Fan-180 9th Jul 18, 7:06 PM
    • 3 Posts
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    Rugby-Fan-180
    • #5
    • 9th Jul 18, 7:06 PM
    • #5
    • 9th Jul 18, 7:06 PM
    Excellent advice and much appreciated, thank you.
    • martindow
    • By martindow 11th Jul 18, 11:58 AM
    • 7,642 Posts
    • 4,354 Thanks
    martindow
    • #6
    • 11th Jul 18, 11:58 AM
    • #6
    • 11th Jul 18, 11:58 AM
    You can split the profits in any way you wish and the tax payable follows on from that split. To optimise it, you'd also have to consider NIC - a straight 50:50 is often not the best outcome, ideally it should be reviewed each year and the numbers crunched.
    Originally posted by Pennywise

    Is this correct? Surely the split should reflect the hours and/or work put in by each partner. The OP is looking to avoid going into a higher rate tax band and HMRC could be unimpressed if they think the 'partnership' is an artifice to achieve this.
    • 00ec25
    • By 00ec25 11th Jul 18, 7:02 PM
    • 6,651 Posts
    • 6,253 Thanks
    00ec25
    • #7
    • 11th Jul 18, 7:02 PM
    • #7
    • 11th Jul 18, 7:02 PM
    Is this correct? .
    Originally posted by martindow
    in the specific context of a formal partnership, yes it is

    https://www.gov.uk/hmrc-internal-manuals/partnership-manual/pm10800

    https://www.gov.uk/hmrc-internal-manuals/partnership-manual/pm30100

    https://www.gov.uk/hmrc-internal-manuals/partnership-manual/pm31500

    although you are correct in the sense that you cannot have one sided costs done only to alter the profit/loss of an individual partner, nor can one make a loss whilst the other a profit
    https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim82245

    https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim82250
    Last edited by 00ec25; 11-07-2018 at 7:07 PM.
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