Tax deduction for Partners for items outside of accounts

Tax deduction for Partners for items outside of...

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Mr X was in a partnership and was allegedly paid much less than promised (salaried partner with no Partnership Agreement or deed) (Circumstantially and generally knowing the client, I am quite happy he is telling the truth about this)

This caused disagreement (!) and so he incurred considerable legal costs to protect his position.  Accounts were done without him seeing them until after the event.  Eventually, he 'left' the Partnership.  For two very strong reasons, he is not now going to pursue this through the Courts.

My interest is damage limitation and trying to get some relief for these legal costs, but the immediate difficulty is that they relate to partnership income and naturally  have not been included in any of those accounts.

Any thoughts ?

I would add that I genuinely feel really sorry for the guy as he is also being taxed on the overdeclared income not received and HMRC will not amend due to timing issues - but that is a different battle !

Replies (14)

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By Andrew London
25th Jan 2015 00:35

Loan from Partnership

Mr X and Mr Y are in business Partnership. There is Partnership Agreement or deed. The partners take the money from Partnership as loan. Can Partnership make a loan to the Partners? Please help.

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Replying to Ruddles:
By Paul D Utherone
25th Jan 2015 11:25

You should start this as a new question

Andrew London wrote:

Mr X and Mr Y are in business Partnership. There is Partnership Agreement or deed. The partners take the money from Partnership as loan. Can Partnership make a loan to the Partners? Please help.

... piggy backing another question means you will not get an answer unless someone happens to see the new question ... but in answer to your question I would say the answer is no, and all they have done is draw against profits
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Replying to Tax Dragon:
RLI
By lionofludesch
25th Jan 2015 12:35

Agree - unless ....

Paul D Utherone wrote:

Andrew London wrote:

Mr X and Mr Y are in business Partnership. There is Partnership Agreement or deed. The partners take the money from Partnership as loan. Can Partnership make a loan to the Partners? Please help.

... piggy backing another question means you will not get an answer unless someone happens to see the new question ... but in answer to your question I would say the answer is no, and all they have done is draw against profits

Agree - unless it's a Scottish partnership.

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Replying to Tax Dragon:
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By Andrew London
25th Jan 2015 12:36

Thank you Paul.

It is my first question. 

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Replying to Ruddles:
By johngroganjga
25th Jan 2015 12:48

Question

Andrew London wrote:

Mr X and Mr Y are in business Partnership. There is Partnership Agreement or deed. The partners take the money from Partnership as loan. Can Partnership make a loan to the Partners? Please help.

Why does it matter? Why do they want payments to them to be debited to a loan account rather than to their capital or current accounts? What purpose do they think it serves?

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Replying to Wilson Philips:
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By Andrew London
25th Jan 2015 15:22

Partners took a loan

Thanks for all.

The whole story is:

Mr X and Mr Y are in business Partnership. There is no formal Partnership Agreement or deed. They didn't  share the profit from partnership in tax year 2013/2014 and they intended to keep the profit in partnership and made a loan to both partnership for income tax purpose.

Answer is No, i want to know why.

If the Partnership becomes to Limited Company. The company can make the loans to participators.

Thank you

 

 

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By Paul D Utherone
25th Jan 2015 11:23

They may relate to the partnership

and be in connection with a dispute between the partners, but they are unlikely to be to do with the partnership trade and so, I would suggest, not allowable.

If they were a personal expense incurred on an allowable partnership cost they can still not be claimed through the partners personal return but must be included within the partnership return & comps and then, presumably allocated to him as a negative prior share to allocate the relief to him alone ... and that's not very likely to happen, is it?

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RLI
By lionofludesch
25th Jan 2015 15:28

Scotland

Unless the partnership is registered in Scotland (which is why I asked - but got no reply), it's not a separate legal entity.

These people are just "lending" their own money to themselves.  That debt wouldn't be recognized in law.

If it becomes a Limited Company ?  It isn't, though.

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Replying to Tax Dragon:
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By Andrew London
25th Jan 2015 15:36

Scotland

Hi,

Sorry to miss it.

No, Partnership is registered in England, what is the difference in Partnership registration between England and Scotland?

Yes, The partners intend to avoid the income tax.

 

 

 

 

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Replying to thomas34:
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By lionofludesch
25th Jan 2015 15:43

Mistaken

Andrew London wrote:

Hi,

Sorry to miss it.

No, Partnership is registered in England, what is the difference in Partnership registration between England and Scotland?

Yes, The partners intend to avoid the income tax.

In Scotland, a partnership is a separate legal entity.  The law is different.

The partners' income tax won't be affected.  They are fundamentally mistaken in believing so.

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RLI
By lionofludesch
25th Jan 2015 15:30

Turning to the OP

I'd ask my question again if I were you as your thread seems to have been hijacked.

However, imho, there'll be no relief against partnership income unless the expense has gone through the partnership return.

It was one of the big changes we had to get our heads around back in 1996.

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By Paul D Utherone
25th Jan 2015 15:36

Yes I should have been clear

my first response was to the OP not to the hijack.

My second was in response to the hijack

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By Andrew London
25th Jan 2015 16:08

I agree

Yes, they are wrong. 

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RLI
By lionofludesch
25th Jan 2015 16:19

Long thread

Jeez - it needed a long thread to get us to that admission.

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