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
Replies (2)
Please login or register to join the discussion.
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?
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