Limited Company as a Partner

Limited Company as a Partner

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I wish to create a partnership between a sole trader and a new Ltd company of which the sole trader will be the only director.

The only income receivable by the Ltd company will be a share of the partnership profits. All available Ltd Co. profits will be paid to the sole director as a dividend. Part of these dividends will attract HR tax at 32.5%.

If this arrangement were set up what can of worms could I be opening up?

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By Cloudcounter
04th Jul 2012 17:00

No AIA is available to partnerships where one of the members is a company. 

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By Steve Kesby
04th Jul 2012 17:29

It was suggested...

... in the ICAEW's Taxline Tax Planning publication for 2011/12 (Chapter 1, page 14) that this could fall foul of the Settlements legislation.

I'd agree that S.619 ITTOIA 2005 could be applied by virtue of S.624, so that the individual partner is taxed on the company's share of the profits, if there is, in fact, a settlement. If the effort of the individual is brought to the partnership business both in his individual capacity and via the company (for which you might expect to see some remuneration), then there wouldn't be a settlement.

On way of dodging the AIA issue would be for the corporate partner to hold the assets and then lease them to the company. Any car for the individual's own use should remain in the partnership though (no AIA anyway), and the private use adjustment should just go against his partnership share, so that you can't get a BIK.

If the business is or needs to be VAT registered, you'd need to have the partnership as an LLP and form a VAT group (so that you don't need to account for VAT on the leasing charges), which would then preclude the use of the Flate Rate Scheme.

I've also seen it questioned whether you'd get ER on the shares in the corporate partner, but I'd imagine that you'd dispose of the partnership business in this situation.

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By WinterbourneAssociates
05th Jul 2012 12:03

Thank you Steve & Cloudclounter.

Steve your information makes me think that I would fall foul of the settlements legislation.

My main reason for thinking about the partnership with a Ltd company was so that all the motoring expenses could be included within the partnership, thus avoiding the BIK.

Thanks for your response.

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