Chapter 19 Partnership admissions and retirements

Question 1

19.2 Partner admissions

Answer 1

A new partner will cause a change to the profit-sharing ratio. We follow the change and split the accounting period. Once we have allocated the profit, we treat all partners as separate for tax, continuing partners will be taxed on their profit using the normal current year basis. The new partners is taxed using the commencement rules (opening year rules). The new partner is deemed to have commenced trading when he joined the partnership, and to have an accounting period which falls in line with the partnership date.

Question 2

19.3 Partners retiring

Answer 2

This will also cause a change to the profit-sharing ratio. The retiring partner will be assessed using the usual cessation rules. Overlap profits will reduce the final year assessment for the retiring partner.