general partnerships

Question 1

types of partners

Answer 1

• full/equity partner - active running of business
• sleeping partner - don’t help with day-to-day running of business
• salaried partner - effectively a senior employee
• corporate partner - ie a ltd business (partnerships with a ltd company as partner are known as mixed partnerships)
• limited partner (in a gen partnership not an LLP)
• limited to cap intro to business
• must have a partner who is unlimited as well
• hmrc regard as liable for class 2 and 4 nics as self employed earners

Question 2

penalties / nominated partner

Answer 2

nominated partner:
- registers partnership with HMRC when formed
- responsible for filing partnership tax return & partnership statement

if filed late all partners are liable
if return is 10 days late all partners will receive £100 penalty
if return is more than 3 months late then all partners will receive penalty of £10 per day for max of 90 days
if return is 6 months late £300 penalty for each partner & again at 12 months
all partners liable for inaccuracy based on their individual potential lost revenue

amendment rules as normal

record must be kept by all partners for a minimum of 5 years & 10 months following the end of the tax year

Question 3

profit sharing

Answer 3

drawings should not appear on the tax return as they are taxed on profits

partners salaries are not to be confused with an actual salary, they are not taxed as employment income
just a way of giving partner priority on profits

interest on capital is also just a chunk of profit allocation

Question 4

other partnership income

Answer 4

*other untaxed income such as rental income for the partnership is split according to the profit sharing ratio
- this is then entered into the individual tax returns and taxed as normal non-trading income
- transitional rules apply to this income but there is NO SPREADING allowed for the transitional part

• untaxed income does not include dividend income into the partnership - dividend income is never taxed on a current year basis - it is always taxed in the year it is received
• if partner received office/employment as a ned in a client company it is treated as trading income in the partnership
• time spent in office/employment must be insignificant in comparison to time spent in partnership
  -the individual partner must be required to pay over the income & must actually do so

Question 5

limit on relief for qualifying loan interest

Answer 5

• when individual joins a partnership they may take out a loan for capital contribution
• this loan is qualifying interest and is tax deductible on individuals income tax computation
• reduced individuals net income

cap:
GREATER of:
£50k & 25% of adjusted total income

might result in a loss of relief on interest - for example if trade loss is claimed against non-trading income

to avoid this the partnership could take out the loan and the loan payments could be deducted in arriving at taxable trading profits & cap would not apply

Question 6

partnership-anti avoidance measures

Answer 6

• disguised employment within LLP - partner is effectively an employee
• mixed partnerships - removes:
• profit allocation to corporate partners
• loss allocation to individual partners
• transfer of assets or income streams
• prevents disposal of assets or income streams that are avoiding income tax

Question 7

partnerships and capital allowances

Answer 7

• if the p&m is owned by the partnership and capital allowances can be deducted in arriving at tax adjusted trading profits
• if p&m is leased by partner to partnership no capital allowances can be claimed
• if there is a formal agreement the partner owning the p&m can deduct CA form their income
• ca are ignored for retiring or joining partners unless they all retire at the same time and new partners take over
• in this case the p&m would be transfered at market value
• no AIA or fya would be available to the new partners