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LLP Partner Profit Share and extractions

Partner taking out more than the profit share

Hi All,

I have an LLP partnership with 2 partners. One partner is introducing £100,000 to basically fund the business.

To enable the other partner to be in business, he will be drawing out an amount each month. As the business is making no profits currently when drawing the amount out partner 2 (with no current account introductions) will go in to defecit.

So given that the partnership is making no profits, would the partner 2 extractions even have to go on the tax return or would it just be seen as a negative account on the balance sheet? I think it would not go on the tax return and it is just an issue between the partners.

Some figures for example. Partner 1 puts £100,000 in, Partner 2 nil. Profits in year nil. Partner 2 draws £24,000. So Partnership profits are nil. Partners accounts show partner 1 £100,000 in credit, partner 2 £24,000 in deficit.

Many thanks for assistance

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08th Nov 2017 15:07

Partners are taxed on their profits not their drawings. But just check that both partners agree that the excess drawings are to be recovered out of future profits, and are not, for example, a salary profit tranche.

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By PALacc
to johngroganjga
08th Nov 2017 15:39

Thanks John, as always you have been very helpful.

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10th Nov 2017 19:39

Solicitors?

They love LLPs/partnerships as they get to empty the bank account to live above their means rather than being limited to drawing out the profit.

God forbid you suggest to a solicitor that perhaps he should fund the working capital of his own business. You will soon see all shades and colours of the arrogant sense of entitlement that solicitor partners are famous for.

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By johnt27
13th Nov 2017 12:01

What does your LLP agreement say?

This will determine the treatment of the capital introduced, drawings taken and profit sharing arrangements.

The joys of LLPs means that both the capital introduced and drawings taken can be treated in a multitude of ways.

This is, of course, irrelevant for tax as that solution has already been provided. Although the drawings, if a fixed profit share would be taxable...

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