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Family partnerships x 2

Family partnerships x 2

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Very little practical experience with partnerships; so I would welcome comments on flaws or alternative suggestions with this set up - edited fro brevity:

Mr A is the common partner in 2 separate family partnerships.  Partnership 1 (P1, and not a client) is Mr and Mrs A selling and fitting bespoke bathrooms for 25 years.  Partnership 2 (P2; new client) is run by Mr A and his son B.  It’s been selling and fitting off the-peg bathrooms for say 7 months.

Mrs A prepares separate books, VAT registrations, CIS etc for the 2 partnerships. Premise of both is 50:50 profit share with no partnership agreement.

P2 starting to grow fast, supported by un recharged labour, bookkeeping, office/showroom space from P1.  Mr A has asked if P1 can invoice P2 for labour, room space, services of Mrs A etc.  Is there an issue with:

  1. Mr A being common to both partnership trades or
  2.  trade labour being provided to P2 via invoicing with VAT

Or should they simply reconsider their proposed 50:50 profit share to reflect what each brings to P2 including that very substantial rent/admin/labour contribution from P1 to P2's business.  Perhaps Mr could take a fixed share first to cover this.

Replies (6)

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By johngroganjga
17th Feb 2016 09:04

Fiddling with the profit sharing would be over-complicated and lacking in transparency.

Just let one partnership invoice the other for agreed charges for services supplied.

Thanks (1)
RLI
By lionofludesch
17th Feb 2016 09:13

Agree - don't forget to consider whether CIS is appropriate for the labour costs,

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By JimH
17th Feb 2016 09:26

CIS was one concern
Thank you. P1 deals with payroll and CIS on its work force. When it supplies onward labour, doesn't seem appropriate for P2 to operate CIS again? Hoping one onward service charge plus VAT for admin, rent and labour supplied and no other issues with self-supply due to common partner.

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RLI
By lionofludesch
17th Feb 2016 09:44

Sure ?

JimH wrote:
Thank you. P1 deals with payroll and CIS on its work force. When it supplies onward labour, doesn't seem appropriate for P2 to operate CIS again? Hoping one onward service charge plus VAT for admin, rent and labour supplied and no other issues with self-supply due to common partner.

If I understand you correctly and P1 is supplying P2 (or vice versa) with labour in the construction industry, P2 needs to deduct CIS tax just as it would any other subcontractor.

Having one common partner and the same bookkeeper does not excuse this responsibility.

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By JimH
17th Feb 2016 10:11

If a client won't operate CIS

lionofludesch wrote:

If I understand you correctly and P1 is supplying P2 (or vice versa) with labour in the construction industry, P2 needs to deduct CIS tax just as it would any other subcontractor.

 

lionofludesch Thanks for spelling out.  Not had CIS contractor clients in a great many years. But that does make sense.

 

Whilst I have your ear, a cheeky tangential question:

I've acted for a client for a few years.  Just recently he's bought a property to improve and sell, paying a mate.  Much as I tell him he's a developer caught by the contractor rules and must operate CIS on payments to his mate for labour, he's just not having any of it.   Do you continue to act for such clients just highlighting risks or disengage?

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RLI
By lionofludesch
17th Feb 2016 11:39

Chance

JimH wrote:

Whilst I have your ear, a cheeky tangential question:

I've acted for a client for a few years.  Just recently he's bought a property to improve and sell, paying a mate.  Much as I tell him he's a developer caught by the contractor rules and must operate CIS on payments to his mate for labour, he's just not having any of it.   Do you continue to act for such clients just highlighting risks or disengage?

After giving them a fair chance to mend his ways, I'd disengage.  Nothing to do with his honesty - I can't do with clients who won't listen to my advice.

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