Accounts question
Author
Discussion

ADogg

Original Poster:

1,363 posts

244 months

Sunday 11th March 2018
quotequote all
I run a B&B with my wife as a partnership. I’ve been offered a job which I’m going to accept tomorrow, starting in April.

Are we better off making my wife a sole trader for the next financial year? Only she would be drawing a wage etc from our B&B, and whilst I’ll still be doing bits and bobs I’ll be taking a back seat and no longer drawing a wage from it.

I dont know much about all this - I’ve asked my accountant this question but no reply as yet, and I’d like to have an idea pre accepting the role!

Thanks

Eric Mc

125,770 posts

295 months

Sunday 11th March 2018
quotequote all
In the situation where a business is being run as a sole trader or a partnership, the proprietor(s) is not taxed on what they draw from their business (what you are referring to was "wages") but in the case of a sole tradership or partnership are actually referred to as "Drawings".

Sole traders are taxed on the actual profit of the business BEFORE any drawings are accounted for.

Partners as individuals are taxed on their share of the partnership profits BEFORE any partners' drawings are counted for.

An example

A sole trader business makes a profit of £80,000 BEFORE Drawings
The proprietor takes out £50,000 as Drawings.

The proprietor will be taxed on £80,000 - not £50,000.

A partnership business makes a profit of £80,000 BEFORE Drawings.
The partners share profits equally
The partners each take out £20,000 as their Drawings.

The partnership profits are split 50/50 to each partner i.e. £40,000
Each partner is taxed on £40,000 - not the £20,000 drawings they took out for themselves.


ADogg

Original Poster:

1,363 posts

244 months

Sunday 11th March 2018
quotequote all
Ok thank you! It doesn’t make too much difference then?!

Countdown

49,519 posts

226 months

Sunday 11th March 2018
quotequote all
Adogg- you CAN vary the share of each partner's attributable profits.

In other words - you don't have to be 50:50 partners, you can be 99:1

How you choose to share it is up to you. You may want to split it in such a way that you both maximise using your tax free allowances / 20% tax bands.

Countdown

49,519 posts

226 months

Sunday 11th March 2018
quotequote all
Adogg- you CAN vary the share of each partner's attributable profits.

In other words - you don't have to be 50:50 partners, you can be 99:1

How you choose to share it is up to you. You may want to split it in such a way that you both maximise using your tax free allowances / 20% tax bands.

ADogg

Original Poster:

1,363 posts

244 months

Sunday 11th March 2018
quotequote all
Countdown said:
Adogg- you CAN vary the share of each partner's attributable profits.

In other words - you don't have to be 50:50 partners, you can be 99:1

How you choose to share it is up to you. You may want to split it in such a way that you both maximise using your tax free allowances / 20% tax bands.
Thank you!

I don’t really want to take anything from it next financial year as I’ll be salaried elsewhere, and our profit isn’t enough to worry about!

KevinCamaroSS

13,848 posts

310 months

Sunday 11th March 2018
quotequote all
Countdown said:
Adogg- you CAN vary the share of each partner's attributable profits.

In other words - you don't have to be 50:50 partners, you can be 99:1

How you choose to share it is up to you. You may want to split it in such a way that you both maximise using your tax free allowances / 20% tax bands.
Would that not depend on the ownership share of the property?

loafer123

16,745 posts

245 months

Sunday 11th March 2018
quotequote all

Could you create an operating business in a ltd company which leases and operates the B&B and pays a modest rent to you both and therefore take £5k tax free divis plus a salary for your wife with personal allowance?

sgrimshaw

7,587 posts

280 months

Monday 12th March 2018
quotequote all
KevinCamaroSS said:
Would that not depend on the ownership share of the property?
No, it depends on the agreed split per the partnership agreement.


KevinCamaroSS

13,848 posts

310 months

Tuesday 13th March 2018
quotequote all
Thanks for the clarification.

Countdown

49,519 posts

226 months

Tuesday 13th March 2018
quotequote all
KevinCamaroSS said:
Countdown said:
Adogg- you CAN vary the share of each partner's attributable profits.

In other words - you don't have to be 50:50 partners, you can be 99:1

How you choose to share it is up to you. You may want to split it in such a way that you both maximise using your tax free allowances / 20% tax bands.
Would that not depend on the ownership share of the property?
You may be thinking of income from property (rather than a trade). Each part-owner is deemed to have received the income in proportion to their share of ownership. That wouldn't apply to a business.

KevinCamaroSS

13,848 posts

310 months

Tuesday 13th March 2018
quotequote all
Indeed I was