Partnership with no Account end date in Year

Partnership with no Account end date in Year

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My question is best demonstrated by an example;

Partnership (two equal partners), commenced 06/04/07.
Accounting date chosen of 30/04/xx, so the first accounting period is 06/04/2007 – 30/04/2008. Profits for this period are £24,000 (split 50/50 between the partners).

As this is a partnership, there is an instruction within SA850 (page 7) stating that if no accounts end in the tax year, instead return details for partnership trading from 06/04/07 – 05/04/08. This period shows a profit of £20,000 (£10,000 per partner).

Moving to each partner’s return, I am confused about the correct method of calculating the profits for the basis period. The basis period is clearly 06/04/07 – 05/04/08, but what are the assessable profits;

• Do I take the “true” accounting profit (£12,000) and multiple by 12/13 (or day equivalent) = £11,076

• Of take the details entered on the partnership return = £10,000.

Tax Return guide suggests the former, but BIM71025 suggests I can use the latter.

If I use the latter – what is the position for year 2?

Basis period for 2008/09 (assuming no cessation) would be 01/05/07 – 30/04/08 – and so my overlap period is 01/05/07 – 05/04/08;
I assume my assessable profits for 2008/09 will be;
12/13 x £12,000 = £11,076
But what are my overlap profits?

Mark

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By r3hep
01st Oct 2008 15:19

Accounting year end is after Tax Return deadline
Similar position to the above but what is the treatment if the parternships commenced trading mid-January 2007?

Commemcement rules state the 2006/2007 would be mid-Jan 2007 to 5 April 2007; second year would be actual profits arising 6 April 2007 to 5 April 2008; third year would be twelve months ended 30 April 2008.

Overlap profit would be 1 May 2007 to 5 April 2008.

However, the deadline for submitting the 2006/07 return would be three months before the end of the accounting period - how do you quantify the profits to show on the return?

Do you use a "best guess" or do you file a £Nil return and declare everything in year 2?

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By codling
03rd Jun 2008 17:22

partnership with no account ending in year
In the normal course of events you would use the £24,000 profits to calculate the assessable amounts for both 2007/2008 and 2008/2009.
In round terms 2007/2008 is 12/13 x £24,000 = £22,154 which is then allocated between the 2 partners giving assessable profits of £11,077 each.
For 2008/2009 the assessable amount is again 12/13 of £24,000, giving the same result.
The overlap period is 6 May 2007 to 5 April 2008, which is 11/13 of £24,000 = £20,308 or £10,154 for each partner.
SA850 is, I believe, for where no accounts have yet been prepared and a "best guess" has to be made which would be corrected later.
I see you have an actual profit figure to 5 April 2008 so have you prepared actual accounts to that date?
Assuming you have just calculated the actual profit to 5 April 2008 from your working papers without preparing formal accounts, I see no reason why this actual calculated profit cannot be used to 5 April 2008.
Your 2008/2009 assessable profit would then be 11/12 x £20,000 plus the April profit, which must be £4,000, split 50/50.
The overlap would become 11/12 x £20,000 split 50/50.

Regards,

John

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