I have a sole trader client who is a 10% partner in a partnership. The sole trader is forming a partnership of his own and that partnership is to replace the sole trader partnership such that the 10% profit share is paid into the new partnership instead of to the sole trader as was.
I am sorry that this might be an odd question but I do not know the answer and so wondered what is the method by which HMRC are advised that the UTR number for the sole trader as a partner is being replaced by the UTR of the new partnership. Are there any special forms to complete or is it a case of simply informing HMRC and then ensuring that the partnership tax return records the profit share attributable to the partnership UTR instead of the sole trader UTR?
This will be a 6th April change so no mid year change will be necessary.
Thank you
Replies (14)
Please login or register to join the discussion.
It may be possible in Scotland, where I understand that a partnership is a legal person, but I think that the plan fails in England and Wales. But why not just introduce the new partners into the main partnership as individuals, and the adjust the profit sharing to achieve the same result? Much easier that way surely.
I assume this is a scottish partnership.
You notify the change in the same way as you would any other change in partner. Just complete the tax return with the partner details and UTRs.
If it's not a scottish partnership then it cannot be a partner in another partnership. Instead the wife will need to be added as a partner in her own right, after agreement with the other partners.
When you say "The sole trader is forming a partnership of his own" do you mean he is taking on a partner?
Also confused at reference to "the sole trader partnership".
Do you know what the plan is intended to achieve?
Is the individual deemed to dispose of his partnership interest and his new partnership deemed to acquire it? Presumably the 'main' partnership partners are agreeable to the plan?
Limited companies are separate legal entities for both legal and tax purposes. As noted above, under English law, partnerships are not separate for tax purposes. There are other "partners" in the main partnership that are Limited Companies apparently so presumably there is a mechanism for letting HMRC know that but i do not know what it is.
You cannot apply a mechanism relevant to one entity to an entirely different one.
What do the other partners say to this?
You're still altering the partnership structure however you go about this. Why should the others accept any change that potentially complicates life for them but only benefits your client?
What do the other partners say to this?
You're still altering the partnership structure however you go about this. Why should the others accept any change that potentially complicates life for them but only benefits your client?
A one-0ff administrative nuisance certainly, but at no financial cost to them at all. Future profits and drawings not affected by one penny.
A one-0ff administrative nuisance certainly, but at no financial cost to them at all. Future profits and drawings not affected by one penny.
A one-off nuisance? Possibly.
But you now have another person who has a direct interest in partnership affairs. As such, they arguably have a right to attend partnership meetings and have their say on what they think the partnership is doing. For that matter, isn't the work the wife does effectively for the main partnership. After all, her income would solely be based on the partnership doing well. If it is alleged that her involvement has improved the partnership's profits overall, would that not justify her calling for a change in the profit shares?
The chances are that the wife won't actually have an appreciable impact. But why should the other partners even open themselves up to the possibility if there is no benefit to them?
For completeness, what has not been mentioned is that whilst an LLP is taxed as a partnership, it does have a legal personality of its own, meaning that an LLP can be a member of another LLP or a partner in a partnership.
Going off at a small tangent, you may want to encourage your client to keep his tax affairs reasonably simple.
If nothing else, good luck explaining this structure to a mortgage broker or bank.