An LLP client has a salaried partner, who meets the three 2014 tests so their income is dealt with via PAYE, and is part of the P & L salary deduction.
They are also entitled to a 5% profit share after prior profit allocations have been dealt with, established in the usual way once the partnership business tax computation has been dealt. This must be paid to the salaried partner via PAYE as soon as possible (within nine months of the year end). They also highlight that the salaried partner doesn't appear on the partnership return.
So how do you deal with the 5% on the partnership return, or rather, how can I allocate only 95%, while treating it as 100% of the taxable profits? The accounts were signed off and submitted to CH ages ago, so don't want to be changiong those, but TBH, I don't see how this could be an accounts adjustment, as the 5% couldn't be quantified at that time.
I could alter an entry in the P & L (salaries and wages maybe?) to reduce my net taxable profit but if I alter what is an accounts figure, then my balance sheet will not balance, so I'd need to altyer other figures. Either way, the figures on the partnership tax return would no longer match those in the accounts.
I could reduce an addback, to ultimately reduce the net taxable profit while not impacting on the 'net profit per the accounts' figure, but what happens if I don't have sufficient add backs to cover the 5%?
I could just reallocate the 5% between the other partners, but that would mean they pay tax on income which a) they are not entitled to and b) will be taxed via PAYE, so would mean taxing the 5% twice?
A variation on this, which is the one I'm favouring at the moment, is to introduce the 5% into box 3.82 - Adjustment on change of basis on the partnership return. I don't think this is strictly correct (the HMRC notes talk about using it when there has been a change from self employment and partnership activity), but at least i don't need to make changes to the P & L or addback figures?
This is the first year this has happened, but I also would like to be clear on how this is dealt with in the following year i.e. in the accounting period when the 5% is paid to the salaried partner.
All of the HMRC and other online/telephone guidance I've found doesn't cover this side of it, simply suggesting that the business is entitled to a deduction for the amount paid to the salaried partner (unless it wouldn't otherwise be allowable). I've got a call into HMRC to speak to the equivalent of an accounts inspector (I hope...) to get their thoughts.
Anyone dealt with this sort of thing before or knows how to?