Partnerships Flashcards
What is a partnership?
A partnership is a body of persons carrying on business together with a view to profit: effectively a group of sole traders acting together
What are the two steps you will be asked to complete in taxing a partnership objective test questions?
Step 3: Share tax adjusted profit between the partners using the profit sharing agreement
- allocate ‘salary’
- assign ‘interest on capital’
- share remaining profit as per the profit sharing ratio (PSR)
Step 4: Tax each partner individually using the basis period rules
What is the basis period for an ongoing partner?
Current year basis - In other words, his or her trading income will be his or her allocated profits for the accounting period ending in the tax year.
What is the basis period for a new partner?
Opening year rules-
A partner joining the partnership will need to use the actual basis for his or her first tax year trading as a partner.
For the second tax year, he or she will use the current year basis, which is likely to create overlap profits.
What is the basis period for a leaving partner?
Closing year rules -
A partner who is retiring from the partnership or moving firms will need to apply the closing year rules. If he or she had overlap profits from when he or she joined the partnership, this is the time he or she will be relieved.
When is the submission for the due date of a partnership return?
The due date for submission of the partnership return is the same as for a personal self-assessment return and depends on whether the return is electronic or paper
What happens if a partnership return is late?
You should use the table ‘Income tax and CGT: penalties for late filing of a self-assessment return’ that is in the tax tables provided
What happens if a partnership return contains errors?
You should use the table ‘Penalties for incorrect returns’ that is in the tax tables provided in the exam
