Partnerships Ch6

Question 1

How should investment income for a partnership be allocated?

Answer 1

Using the profit-sharing ratio for the period in which the investment income arose.

This applies to investment income from sources like a partnership savings account.

Question 2

What is the liability of partners in a Limited Liability Partnership (LLP)?

Answer 2

Restricted to the capital they contributed.

This means that personal assets of LLP partners are generally protected from business debts.

Question 3

Are LLP partners taxed in the same way as ordinary partners?

Answer 3

Yes.

This means that the taxation of LLP partners follows similar rules as those for traditional partnerships.

Question 4

How are partners taxed in partnership

Answer 4

A partnership itself isn’t a taxable person, each partner is liable for their share of tax on taxable trading income of the partnership on same basis as shareholder

Question 5

How are partnerships profit allocated 4 lines

Answer 5

1. Perform adj to profit (for partnership as a whole for the period of account)
2. Calc and deduct CA
3. And split the profit between partners in accordance with their partnership agreement (use salary and interest on capital first, then profit sharing ratio to split the remainder)
   Time a portion the accounting period into parts if something changes eg partner joins/leaves
   4.treat each partner as a separate sold trader and apply the basis of assessment rules to calc their trading profit assessment

Question 6

What do u do with a trading loss generated for the tax year by sole trader/partner?

Answer 6

-Enter a trading profit of nil in the income tax comp
-there are then several ways of relieving the loss (w) loss memo

Question 7

2 types of normal loss relief options

Answer 7

1. Set loss against income then gains
2. Cf of losses

Question 8

How do u set trading loss against income as a relief (criteria etc 6 lines)

Answer 8

1. The trader can choose to set trading losses against total income (typically against NSI, then SI THEN DIV) of the tax year in which the loss making accounting period ends and /or the preceding tax year so:
   
   • this year or
   • last year or
     - this year then last year or
   • last year then this year or
   • no claim for current/prior year relief
2. You cannot restrict the loss claim to preserve income to cover PA
3. The trader can choose which year to set the loss against first
4. If a trading loss has already been set against total income for a given tax year, the trader can then claim to set any excess losses against chargeable gains in the same tax year
   - set the trading loss against total gains less capital losses for the year (loss capital losses bf)
   - loss relief cannot be restricted to preserve capital gains tax annual exempt amount