Partnership Profit Share
Discussion
In conjunction with an ex-colleague we have started a business, initially as a Partnership, to deliver ERP Consultancy and Project Management.
The main reason for forming a partnership was to promote a "unified, single source of supply" to our customer base.
Our skills complement each other, and I am certain that our earnings potential is greater together than individually.
My background is in accounting, but never been involved with Partnerships/Sole Trader stuff - all corporate, and that all stopped 15 years ago (maybe more) when I shifted to IT.
Here comes the questions:
Our "needs" differ, in so much as I am happy with a lot lower earning level than my partner (money ain't everything), so the normal % split of profits would not be fair.
Our profits will therefore not be shared, but identified on an actual basis with straight 50/50 split of any "shared" expenses, eg Website hosting.
Once I have found a suitable accounting package this will not be a problem to administer, I could even do it in Excel!. I could use the ERP software on my laptop, but thats' a real sledgehammer approach!
The first question is "Will this be acceptable to the Revenue?"
The second question is "Is there any way that a partner can claim Capital Allowances or Business Expenses WITHOUT it going on the Partnership Tax Return?"
Nothing untoward behind the second question, just wondered. It seems that if Capital Allowances etc are taken into account BEFORE the sharing of profits in a %-based partnership split, then this isn't fair to each partner. The one with the lowest CA would benefit from the highers CA as the sharing comes after deduction. Or have I missed something.
The third question is "Anyone recommend any software? Nothing extreme required, very basic needs really. VAT (Cash Basis, but able to change later maybe), flexible nominal - ideally with the ability to split by Profit Centre/Department (for obvious reasons). I've used Quicken for years, so wondered if Quickbooks would be suitable. I've tried MYOB and IRIS on a trial and liked neither."
Thanks in advance.
Simon
The main reason for forming a partnership was to promote a "unified, single source of supply" to our customer base.
Our skills complement each other, and I am certain that our earnings potential is greater together than individually.
My background is in accounting, but never been involved with Partnerships/Sole Trader stuff - all corporate, and that all stopped 15 years ago (maybe more) when I shifted to IT.
Here comes the questions:
Our "needs" differ, in so much as I am happy with a lot lower earning level than my partner (money ain't everything), so the normal % split of profits would not be fair.
Our profits will therefore not be shared, but identified on an actual basis with straight 50/50 split of any "shared" expenses, eg Website hosting.
Once I have found a suitable accounting package this will not be a problem to administer, I could even do it in Excel!. I could use the ERP software on my laptop, but thats' a real sledgehammer approach!
The first question is "Will this be acceptable to the Revenue?"
The second question is "Is there any way that a partner can claim Capital Allowances or Business Expenses WITHOUT it going on the Partnership Tax Return?"
Nothing untoward behind the second question, just wondered. It seems that if Capital Allowances etc are taken into account BEFORE the sharing of profits in a %-based partnership split, then this isn't fair to each partner. The one with the lowest CA would benefit from the highers CA as the sharing comes after deduction. Or have I missed something.
The third question is "Anyone recommend any software? Nothing extreme required, very basic needs really. VAT (Cash Basis, but able to change later maybe), flexible nominal - ideally with the ability to split by Profit Centre/Department (for obvious reasons). I've used Quicken for years, so wondered if Quickbooks would be suitable. I've tried MYOB and IRIS on a trial and liked neither."
Thanks in advance.
Simon
Partnerships profits are always taxed on a "split between partners" basis.
The profit sharing ratio (PSR) is totally within the control of the partners and can be changed year on year based on the input contributed during the year into the business by the respective partners.
Although you state that the profits won't be split on a "percentage" basis, in reality, that is the way it would be disclosed on the Partnership Tax Return and on your respective personal Self Assessment Partnetrship Supplementary pages. The formula and technique you use to arrive at the eventual profit split is down to you, but whatever you arrive at can ultimately be expressed as an overall "percentage of profit for the year" figure.
The Revenue can challenge the PSR if they feel that the ratio being used has been chosen purely for "tax avoidance" or tax planning reasons.
As you say, Capital Allowances are cnormally laimed as part of the business' tax computations (the old Schedule D calculations) and are therefore carried out before the taxable profits are divided between the partners.
If an individual uses a personal non-business owned asset in carrying out a trade (partnership or otherwise), they can make separate claim on their own personal Self Assessment tax return for the Capital Allowances arising on that particular asset.
An explanation in one of the "white space" areas of the personal tax return would be advisable if this particular type of claim was being made.
Regarding software, Iris is aimed mainly at the practising accountant and is therefore not really suitable for day to day book-kkeping. However, it is extremely good at partnerships and, if you are planning on doing the entire Self Assessment work yourself, learning how to make use of Iris' excellent partnership Accounts and Taxation system is well worthwhile. I use it myself and it is very good.
Normal book-kkeping and accounting is best carried out on a less sophiticated system, such as Sage or Quickbooks. From what you say, Quickbooks mmight be the best bet for you - and it has a very handy facility for switching from "Accruals" basis to "Cash" basis for VAT purposes.
The profit sharing ratio (PSR) is totally within the control of the partners and can be changed year on year based on the input contributed during the year into the business by the respective partners.
Although you state that the profits won't be split on a "percentage" basis, in reality, that is the way it would be disclosed on the Partnership Tax Return and on your respective personal Self Assessment Partnetrship Supplementary pages. The formula and technique you use to arrive at the eventual profit split is down to you, but whatever you arrive at can ultimately be expressed as an overall "percentage of profit for the year" figure.
The Revenue can challenge the PSR if they feel that the ratio being used has been chosen purely for "tax avoidance" or tax planning reasons.
As you say, Capital Allowances are cnormally laimed as part of the business' tax computations (the old Schedule D calculations) and are therefore carried out before the taxable profits are divided between the partners.
If an individual uses a personal non-business owned asset in carrying out a trade (partnership or otherwise), they can make separate claim on their own personal Self Assessment tax return for the Capital Allowances arising on that particular asset.
An explanation in one of the "white space" areas of the personal tax return would be advisable if this particular type of claim was being made.
Regarding software, Iris is aimed mainly at the practising accountant and is therefore not really suitable for day to day book-kkeping. However, it is extremely good at partnerships and, if you are planning on doing the entire Self Assessment work yourself, learning how to make use of Iris' excellent partnership Accounts and Taxation system is well worthwhile. I use it myself and it is very good.
Normal book-kkeping and accounting is best carried out on a less sophiticated system, such as Sage or Quickbooks. From what you say, Quickbooks mmight be the best bet for you - and it has a very handy facility for switching from "Accruals" basis to "Cash" basis for VAT purposes.
On a rethink, I may be wrong actually.
The normal external business related expense claim that can be made outside the business would be "Loan Interest" (not "Capital Allowances"
.
(See my other reply on your other thread on the same subject).
The normal external business related expense claim that can be made outside the business would be "Loan Interest" (not "Capital Allowances"
. (See my other reply on your other thread on the same subject).
Edited by Eric Mc on Wednesday 2nd May 11:14
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