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Paying tax as new business partner

BUSINESS

This is on the basis you will have an equity involvement in the partnership, will be included in the management of the firm and are required to contribute significant capital, and are not therefore caught by new rules which require certain fixed share or salaried partners in LLPs to be treated as employees.

Many professional practices use April 30 as an accounting date as this gives maximum deferral of tax liabilities on rising profits, although in the recent tougher commercial times, with reducing profits, some firms have looked to change their accounting date to March 31.

If we use an example of a partner joining the partnership on May 1, 2014, the first tax return to April 5, 2015, will include the profit share for that period. The return for the subsequent year will include the profit share for the year to April 30, 2015. Thereafter the profits taxed for each tax year will be those for the accounting year ending in the tax year.

This advice, in our experience, results in a look of horror, matched only by the phrase “double taxation” when discussing profits of firms with an overseas branch.

Fortunately, tax rules provide relief for such instances and on this occasion the profits taxed twice on joining the partnership are available for deduction at a later date.

Rennie Welch LLP accept no liability on the basis of this article and detailed advice should be obtained before entering into any transaction.

Have you got a question? If so please email: thebusinessbrain@renniewelch.co.uk.

 

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