Creative timings

Timing of year ends

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Question is about the timing of year end dates and joining dates in the case where new partners are joining a partnership.

2 partners have an established partnership with a year end date of 31st August.  3 new partners have joined the partnership, with effect from 6th April 2015 (they were previously working for the partnership on a self employed basis).  The tax return of the new partners will therefore only show their share of the partnership profit from 6th April 2015 to 31st August 2015, so only 5 months' worth of income for them - or am I missing a trick?  Usually clients would be delighted at having a lower tax bill, however one of them is currently applying for a mortgage, and if the tax return is only showing 5 months of income, he's not going to be able to borrow what he needs to.  Is there anything creative I can do (legitimately of course) around changing year end date to 31st March or joining date of the new partners (even though they have already notified HMRC as 6th April)?

Thanks in advance for any suggestions.

Replies (2)

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By Tim Vane
25th Jul 2016 18:04

You probably need to get your text books out and review your basis period opening rules. By joining on 6 April you have a full 12 months to take into account.

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RLI
By lionofludesch
25th Jul 2016 19:21

Yeah, you are missing a trick.

They'll need the August 2016 accounts to complete their 2016 tax returns.

2015/16 5/12 of 2015 + 7/12 of 2016

2016/17 2016 share in full, overlap relief is 7/12 of 2016

(Obviously, you need to be working this as days, rather than months.)

For partnerships - and particularly for cases where partners come and go - you need a 31 Mar/5 Apr year end. Otherwise it can get very messy.

The rule of thumb is, see how many months your partner has traded (in your case 12) - that's the number of months profit you need to report on the return.

Good luck.

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