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| Original Message Added : 19 Jul 2010 - What dictates a 'sale'? We are a service and a great deal of time passes from the point of appointment by the Client to issue of invoice and then receiving payment. We assumed a sale is when payment is received, not when work starts/appointment. -- We will pay tax on the profits as a split 50-50 (2 partners with equal share). As an example, the LLP profit is £2k, therefore on our personal tax we are liable for £1k each (+ any drawings). In the next/current tax year, we will draw £1k at some point, but how do we record this in the balance sheet/p&l and for the tax-man next year? - Is there any reason why we can't change the deed of partnership to 80-20 etc? Finding tax to be minefield! Any help is greatly appreciated |
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| Reply : 19 Jul 2010 What dictates a 'sale'? We are a service and a great deal of time passes from the point of appointment by the Client to issue of invoice and then receiving payment. We assumed a sale is when payment is received, not when work starts/appointment - generally sale recognized in the period in which the economic event takes place, usually at the point of sale—not when the cash actually changes hands. In your case I would say sale takes places when you issue the invoice. We will pay tax on the profits as a split 50-50 (2 partners with equal share). As an example, the LLP profit is £2k, therefore on our personal tax we are liable for £1k each (+ any drawings). In the next/current tax year, we will draw £1k at some point, but how do we record this in the balance sheet/p&l and for the tax-man next year? You are taxed on your profits each tax year. The amounts of cash you draw is irrelevant. For £1k profits in current tax year, will be taxed. That is it. You do not need to show this in the partnership return for the next tax year. Is there any reason why we can't change the deed of partnership to 80-20 etc More a legal question. From the tax perspective, you can change this. All you need to do is to reflect this in your tax return. I hope this helps. Southside Accountants Tax Saving Newsletter
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| Reply : 20 Jul 2010 Partner A has drawn 2k as salary Partner B has drawn 1k as salary Profit after expenditure (and minus both Partners drawings) = 2k We thought this would work as follows: Partner A tax on 2k salary and 1k profit Partner B tax on 1k salary and 1k profit We are being told this is not possible and we are both liable for tax on 2.5k each. Can anyone clarify? We did a lot of research before entering into an LLP and we are struggling to see the advantages if what our accountant is telling us is correct....more help greatly appreciated! Ta. |
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| Reply : 21 Jul 2010 However, you can split the allocation of your profits from 50:50 to any allocation the partners agree to. So as a result of salary issue misunderstanding you can reallocate your profit share allocation. In terms of salary (drawings) you have drawn- all this means the amount of profit you are able to take from the partnership falls. For example, profit share 50:50. Profit made £150k. Salary of partner A £2k and partner B £3k. This means the reamining profits of the partners from the business are : Partner A £73k and partner B £72k. Since you have already taken £2k and £3k. This is your share if you leave the partnership. Please note your taxable profits remain at £75k each I hope this is of some help! Southside Accountants Blog on how long you should keep your tax records |
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0).jpg&maxW=50&maxH=50&action=crop "Aziz Merchant Mba, Fcca, Bsc (Hons)")
