I have a client partnership engaged in performing arts and the partnership derives its income from performance fees. The partners want to invoice the partnership for services they provide as individuals for any non-performing work, such as dealing with bookings, set design and construction, payroll, other administrative functions. They each want to return the income derived from these functions as a separate self employed activity.
I cannot find relevant HMRC guidance on this, nor the appropriate chapter and verse. My gut feeling is that what the client wants is not acceptable but I can't offer them exact reasons why. Can anyone help?
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Whether it's "acceptable" or not tell them it makes no sense as it will pointlessly increase their admin time and costs. Tell them just to deal with any inequality in their non-performing work through the profit sharing, like everyone else. The result is exactly the same.
Agree prior shares of profit for the relevant elements. Split the rest. The only problem for tax purposes is if that leaves any one of them with a tax adjusted loss and the others with taxable profits, as you can't have that.
How would they intend charging the expenses that they incur on their non performing roles? They cannot claim personal expenses on partnership business separately through their personal returns, so will need to produce personal claims that can be incorporated into the partnership return and tax computation, allocated as negative prior shares & subject to the proviso above re not creating a loss for one and profits for the others