Sole Trader to Partnership?

[Eagle]

What are the rules on 'upgrading' a Sole Tradership to a Partnership? What are the implications on income and allowances i.e. would the partners share the load on income tax from the turnover? Can anyone offer guidance or point to some info?
Cheers.

[Joyous]

Hi Eagle.

It works basically as follows: Sole tradership ceases and partnership begins. You need to register the partnership with HMRC within 3 months. The partnership will be given a unique tax reference (UTR) the individual partners will be given UTR’s as well. As a sole trader you should already have one. If your intended partner doesn’t have one he needs to register himself as self employed. Each partner will be liable to Class 2 NI.

You will draw up partnership accounts to determine the profits of the partnership. Profits will be allocated to each partner based on the profit sharing agreement. Each partner reports his share of partnership profits on his own tax return and is taxed/Class 4 NI’d accordingly. There will also be a separate tax return for the partnership.

Regards

Joy

[Eagle]

Thanks, Joy.

For tax purposes; what about division of workload and the resulting amounts from profit that goes to each person? Is this decided on the partnership agreement? Who writes the agreement?

How is division of workload demonstrated to the IR?

Sorry for all the questions!

[bwglaw]

You should consider having a Partnership Agreement professionally drafted. In the absence of an agreement the partnership will be governed by law that is centuries old!

If you email direct I can give an estimation for a Partnership Agreement, or if you provide the actual terms agreed I can give a fixed-fee quotation

[Joyous]

The division of the workload is something for you and your partner to thrash out between yourselves. All of this should be covered in the partnership agreement which will also set out how profits are to be divided.

You’d be well advised to see a solicitor about drawing up a partnership agreement, although some partnerships have done it themselves (at their peril).

The Revenue are not really interested in who does what within the partnership, they’re only interested in the final division of profits. It’s for you to ensure that the division fairly reflects the contribution made by each partner.

Regards

Joy

[Eagle]

Originally Posted by Joyous

The Revenue are not really interested in who does what within the partnership, they’re only interested in the final division of profits. It’s for you to ensure that the division fairly reflects the contribution made by each partner.

That's what I needed, thanks. Division is about 95% / 5% at the mo'.
Back to the drawing board.