Taxation - Member of LLP leaving in initial years

Taxation - Member of LLP leaving in initial years

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I am trying to work out the tax treatment of the members of an LLP where one of the members is leaving less than two years after the LLP commenced trading.

The LLP has four equal members. It commenced trading on 7 May 2010, it has a year end of 30 April with the first year end 30 April 2011.

The tax for 2010/11was based on losses for the period 7 May 2010 to 5 April 2011. Tax for 2011/12 would normally be the losses for the period 7 May 2010 to 6 May 2011 and after that based on profits for the accounting period ending in the tax year. There will be a small profit for the year ended 30 April 2012. However one member is leaving at 31 March 2012, how does this affect the loss allocated to him and other members for tax purposes in 2011/12 and the profit for tax purposes for other members for 2012/13?

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By Marion Hayes
06th Feb 2012 12:20

Partnership vs Partners

The partnership return is unaffected by the joining or leaving of members as there is no cessation.

The partnership statements should include the partners for the period returned and their share of those profits/losses so the return to 30/4/12 will include the leaving partner with his share of the profits up to 31/3/12.

It is his tax return which shows the impact of his commencement and cessation.

Year to 5/4/11 - share of actual loss

Year to 5/4/12 - balance of first year loss less proportion of profit to 31/3/12.

 

 

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By petergardner
07th Feb 2012 16:37

Partnership v Partners

Many thanks for your helpful response. If I understand it correctly the continuing members are allocated their share of the profits based on an ongoing LLP and are not impacted by the fact that the leaving member is taxed on a cessation basis. Therefore for:

Year to 5/4/12 - 1/4 each of losses for year to 6/5/11

Year to 5/4/13 - 1/4 each of profit for 11months to 31/3/12 plus
                          1/3 each of profit for April 2012

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By Marion Hayes
07th Feb 2012 18:05

@Peter

Evening

Yes - that is my understanding

 

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By petergardner
07th Feb 2012 18:18

Many thanks for your help, that is very useful.

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