Re-drafting partnership accounts

Re-drafting partnership accounts

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A friend’s wife, A, was in a business partnership with B. There was no written partnership agreement. The first year’s accounts were drawn up on a 50:50 profit share, signed and agreed by both partners and submitted to HMRC. The second year’s accounts were drawn up on the same basis, except A’s share of profits was pro rata’d on the basis she had resigned as partner in the 9th month. A died between the end of the second year and the preparation of the second year’s accounts. Neither A while alive, nor her husband as executor, was consulted about the preparation of these accounts, eg details of partnership expenses incurred by A but not yet reimbursed. They were, however, submitted to HMRC with the partnership return. When A’s husband requested payment of the balance of the profits into A’s estate, B said that they were not due as B had done all the work. B then had the accountant re-draft the accounts on a 90:10 split of income, expenses and profits in B's favour, leaving A “owing” a significant sum to the partnership. The accountant also changed the brought forward shares of the first year's partnership profits in this ratio. These have also been submitted to HMRC according to B.  B says that it was agreed that the partnership would pay the partners’ tax (but there was no PAYE scheme). 

 
1                    Can partnership accounts be altered retrospectively as above where there is no material change in events, other than B’s assertion where there is no documentary evidence as to who did what work or agreement that this would affect share of profits, and A is not alive to give her side of the story?
2                    Would HMRC accept amended accounts? 
3                    If HMRC accepts the amended accounts, will it charge penalties for having submitted incorrect personal tax returns as a result?
4                    Can a partnership pay partners’ personal tax liabilities?

Replies (4)

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By Chris Smail
14th Dec 2010 18:10

You need a solicitor not an accountant

In brief

1 No

2 Yes, the disagreement is nothing to do with HMRC

3 No, not usually, certainly not if amended within time.

4 No, if paid from Pship account would be Dr to partners account.

 

Chris Smail

www.langer.co.uk

 

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By cymraeg_draig
14th Dec 2010 18:19

.

I'll respond fully when I have time - but in short this sounds like the surviving partner ripping-off the deceased partners estate.  I'd say its almost a police matter (except they wouldnt bother - as usual) but the terms fraud and theft cross my mind.

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By ruth.julian
15th Dec 2010 16:48

Thanks!

Chris - helpful reply.  My friend went to a solicitor who said see an accountant!

Cymraeg-draig - my thoughts too.  It seems B is not doing very well and is short of money.

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By Chris Smail
15th Dec 2010 17:02

Well I answered all your questions

Seems like fraud to me too. I would have thought we were in the realm on injunctions and so on but CD will no doubt give you a fuller reply shortly.

Chris Smail

www.langer.co.uk

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