Backdating Partnership registration to 14/15

Backdating Partnership registration to 14/15

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I was of the understanding that you cannot backdate the registration of a Partnership to last year.

This potential new client asked me if they could backdate the registration of a husband/wife Partnership to the 14/15 tax year so profits for 14/15 could be split between husband and wife; I had advised NO based on feedback I got.

However potential client has advised me their current accountant (who is about to retire) has backdated the start of the partnership to 14/15 so profits can be split when they do their returns for 14/15.

I am a bit confused now; was it OK for this to be done? Have any rules been breached here?

Replies (18)

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By johngroganjga
12th Oct 2015 11:08

Backdating in this context means falsely claiming that a partnership existed when it did not, and in particular doing so in order to obtain a tax advantage that would not be available if the truth were known.

Does that help?

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By Tim Vane
12th Oct 2015 10:40

That's interesting: clearly you now have knowledge of a fraudulent partnership claim, and no doubt you will file an SAR.

But you are also in receipt of information that indicates fraud by another accountant. Are there reporting obligations there as well?

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By Justin Bryant
12th Oct 2015 11:36

I am not sure

Why this is clearly fraudulent. Whether a p-ship exists or not is a question of fact. General p-ships don't need to be documented. If they are correcting the relevant tax returns to show the correct p-ship position then that would hardly be fraudulent. You are not going anywhere without the correct facts, so just check the facts and all should be fine.

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Replying to NH:
By cheekychappy
12th Oct 2015 11:48

History

Justin Bryant wrote:

Why this is clearly fraudulent. Whether a p-ship exists or not is a question of fact. General p-ships don't need to be documented. If they are correcting the relevant tax returns to show the correct p-ship position then that would hardly be fraudulent. You are not going anywhere without the correct facts, so just check the facts and all should be fine.

 

The previous question suggests no partnership existed. It was an idea to save tax after the client realised they had hit the higher rate bracket.

 

I am in agreement with the first two comments.

 

 

  

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By Justin Bryant
12th Oct 2015 11:56

But

Then again, lay people might have been told that they actually were a p-ship and that they should simply change their returns to save tax and that would be fine. See link below for how easily a p-ship can be formed (unintentionally possibly). Always check facts and don't be quick to allege fraud re "suggestions" etc.

 

http://www.lawgazette.co.uk/practice/solicitor-due-money-from-partnershi...

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By soundadvice
12th Oct 2015 12:12

Interesting one by the sound of it.

It would appear that a Partnership can be set up quite easily by verbal agreement between 2 people and who could know for sure what conversations were had between husband and wife back in 14/15 re working together.

I guess my problem is what they actually have told me!

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By johngroganjga
12th Oct 2015 12:14

Yes but the here it is the taxpayer himself that is announcing that the formation of his partnership is being "backdated" (his word). He would not have used that word if there actually had been a partnership in the period in question.  

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David Winch
By David Winch
12th Oct 2015 12:23

Evidence

Look at the evidence.  If a partnership was in existence previously then you would expect there to be evidence of that such as a business bank account for which the partners were named as the account holders and / or were nominated cheque signatories, sales invoices showing the partnership name (rather than the name of a sole trader), VAT registration in the partnership name, payment of NICs by the partners, suppliers' invoices addressed to the partnership, etc.

If there is evidence that the partnership existed previously then your only problem is that HMRC has been notified late for income tax purposes.

On the other hand if there is no evidence that the partnership existed previously then you can be satisfied that it did not.

The 2014/15 income tax returns should correctly reflect the facts, so either will or will not be completed on the basis of a partnership.

David

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By soundadvice
12th Oct 2015 13:40

I have passed on my concerns to this potential client and told them that unless a genuine partnership was in place last year and backed up by evidence they should not be preparing their 14/15 tax return other than on a sole trader basis.

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By petestar1969
13th Oct 2015 14:08

Hmm

I agree that backdating the partnership registration with HMRC would be a problem.

I had a client in a similar situation and told him the idea was a non-runner after taking advice from here.

 

What might work is the business is a sole trader for one of them and the business uses the services of the other "partner" as a self-employed consultant. That would achieve the objective of splitting the income would it not?

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By johngroganjga
13th Oct 2015 14:20

Only if the cost of employing the consultant is a proper accrual to make in the first accounts and GAAP compliant.

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By AARDVARK
13th Oct 2015 15:16

My own belief is that you can? If there is a genuine business of husband and wife and they are both involved then it is sometimes hard to say when a partnership commenced. It is not too late to backdate the registration of a partnership but you really need to register it by the end of October.

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By AARDVARK
13th Oct 2015 15:18

If HMRC want to challenge the existence of a partnership, they are entitled to. Make sure that there is at least some justification of both husband and wife's involvement in the business 

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By johngroganjga
13th Oct 2015 15:26

Missing the point
It's not involvement in the business that has to be evidenced, it's the existence of a partnership.

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By naomi2000
13th Oct 2015 15:37

 

 

If the partnership is registered on a timely basis then it is evidence that the parties thought that there was a partnership on that date. But if you fail to register, surely the proper inference to draw is that the purported partners are clueless about their compliance responsibilities rather than assuming that no partnership exists. 

A partnership can (and unfortunately frequently does) come into existence without any formal documentation or registration. If a partnership genuinely existed between H and W, then I would encourage them to record the evidence for this and draw up a partnership deed or partnership minute at the earliest date which should not be backdated but may without impropriety record in the recitals that a business has previously been carried on and that the partners now wish to record the terms on which they have agreed to work together ...and get the partnership registered without future delay.

If this is genuinely the case there will usually be a clear paper trail to document it to show that both H and W have both been actively involved in the carrying on of the business and some tactful questioning will usually distinguish between the situation where there really is a partnership and where someone decided it would have been a good idea after the fact.

I suspect from the way you have phrased this question that you believe the latter situation is the true one. In that case, I congratulate you on avoiding taking on a client that might otherwise cause you anxiety and stress far greater than the fee represented . 

I'm interested in why the potential client has come back to you. Is there an underlying concern that he might not have been too clever or is he trying to score points over you ? 

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By soundadvice
13th Oct 2015 16:07

Hi Naomi

Thank you for your thoughts.

No, the client didn't actually come back to me.

We happened to meet at an Art Gallery social event and they brought the subject up in conversation but not in a controversial way at all.

I was concerned after the feedback here and further research I just got in touch and suggested they be careful.

Many thanks

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Morph
By kevinringer
14th Oct 2015 13:34

Are we talking about backdating or late registration?

If the partnership came into existence during 2014-15 then it must be registered with HMRC as commencing 2014-15. We have passed the 6 October registration date for 2014-15 but there won't be a penalty if the 2015 tax return is submitted by 31/01/16. I had a client recently who formed a partnership 3 years ago and didn't tell HMRC because they never got round to it. We had to register from the date of formation. As it happened there were no penalties because HMRC were happy to accept a Second Incomes Campaign disclosure (there was no profit for the first 2 years anyway).

However you can only register the partnership from the date it came into existence. If the business was not a partnership then you cannot backdate the formation of the partnership.

One final point: partnership agreements. Partnerships can be formed by written, verbal or implied agreement. So if the partners thought they were in partnership then that is good enough even if the bank account is in just one name. If the partners subsequently decided to get a written agreement then it will be dated the date it is signed but can state that the partnership came into existence at an earlier date. The written agreement merely confirms the existence of the partnership - it does not create it.

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Replying to JCresswellTax:
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By petestar1969
14th Oct 2015 14:29

Yes

kevinringer wrote:

snip

One final point: partnership agreements. Partnerships can be formed by written, verbal or implied agreement. So if the partners thought they were in partnership then that is good enough even if the bank account is in just one name. If the partners subsequently decided to get a written agreement then it will be dated the date it is signed but can state that the partnership came into existence at an earlier date. The written agreement merely confirms the existence of the partnership - it does not create it.

 

Hit the nail on the head!

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