Employee becoming partner but remaining on payroll

Employee becoming partner but remaining on payroll

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Just met with a new client. Up until 31st July 2014, her partner (cohabiting) was salaried up to NIC primary earning threshold. As she makes £100k profit per year her previous accountants set them up as a partnership from 1st August 2014 (her marginal rate was 40% and he had no other sources of income), but her partner remained on the payroll and on recent FPS' has been paid £155 p.w.

My question is how would I treat his salary paid under RTI (first dibs on partnership profits)? I would have just brought him off the payroll when the partnership commenced. What are the implications of an employee becoming a partner but remaining on the payroll?

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By Manchester_man
12th Oct 2015 12:39

As you say, a salaried partner is fine, but no payroll should be done.

It is at the tax year end that problems are going to emerge, ie, what do you put on the partner's tax return!

One option would be to close the scheme and get it right from here onwards. Then report earnings from employment as a one-off, in addition to the partnership pages.

What name is on the paye scheme, the previous sole trade or the partnership?

If the former, then my actions may be different, in that I would work on the basis that the 'partnership' hadn't yet started to trade.

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By DMGbus
12th Oct 2015 13:48

LLP - PAYE for salaried partners

If the newly set up partnership happened to be an LLP then PAYE operation can be due in respect of a salaried partner.  58 pages of guidance on this scenario was issued by HMRC in 2014.

However if it was a "normal" non LLP partnership then I agree that PAYE is non applicable in normal circumstances.

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