Penalty for late registration of a partnership?
We have a new client who has been operating a business as self employed. However in reality it is a partnership as the profits at the end of the year have been divided up and a charge put through equal to half the profit. The parties are not related and the "silent" partner has declared this income as self employed income.
There are no underlying reasons why it should be done this way so I think we should set up a partnership.
The slight spanner in the works is that the business has been trading just over the VAT threshold for about 12 months now. We are going to apply to register at the backdated point where they should have registered and take the 10% hit that I believe will be levied.
As we need to move this forward as a partnership it does not seem right to register for VAT at a point that it was a sole trader.
What I want to do is backdate a partnership to 1 Apr 10, do the accounts to 31 Mar 11 as a partnership, register for VAT as a partnership from Sept 10.
HMRC guidance is fairly clear that the penalty for late VAT registration will be 10% of the tax due so we know where we stand on this.
However, it is not clear what, if any, penalties may be levied for the late registration of the partnership. Certainly as I can see it there has been no avoidance of tax, both parties are already registered as self employed and are paying NIC's accordingly and all income has been declared on previous tax returns.
Any thoughts or experiences on this matter greatly appreciated!
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