Share this content

New Partner’s tax return and claiming use of home

Didn't find your answer?

I have a new client who is a new partner of a professional partnership and have a few questions. Thanks for any thoughts.

1) If the partnership prepares accounts to December and the new partner joins on 1 Feb 2021 then will he be included in the partnership tax return in the year he joins? (I include his share of profits from 1 Feb to 5 April on 20-21 tax return but the partnership includes the profits for the AP ended Dec 20?)

2) If the new partner has not claimed any use of home expenses from the partnership then is there any way of getting tax relief for such expenses?

Replies (28)

Please login or register to join the discussion.

RLI
By lionofludesch
20th Oct 2021 19:44

Pffft - you've got a fair mix of dates there. I would always recommend changes of personnel on dates to which accounts are made up and I never liked partnerships with accounting dates other than 31 March or 5 April.

Still, you play the cards you're dealt.

1. Partnership returns are different to SA returns in that they show profits for the accountimg period and their allocation. So, no, the new partner wouldn't have profits allocated to him but I would include him on the return as a partner withb zero profits.

2. Depends what you mean here but, as you probably know, the charge has to go through the partnership return. Cash doesn't have to change hands, though. It could be treated as capital introduced. But not this year. This year only covers a period before the partner was admitted.

Thanks (0)
Replying to lionofludesch:
My photo
By Matrix
20th Oct 2021 20:05

Thanks Lion, I was hoping you would see this.

1) So I don’t need to ask for a copy of the partnership 20-21 tax return? Or you think I should since this should include zero profits for this partner even if they won’t agree to the partner’s self assessment?

2) The partner is not going to put in a claim so it won’t be in the partnership books. It is a new client and I have told him that he isn’t even entitled to tax relief on £6 a week.

Thanks (1)
Replying to Matrix:
avatar
By AdamMurphy
20th Oct 2021 20:50

That's like going on Dragon's Den and saying you're only interested in one investor.

Thanks (1)
Replying to AdamMurphy:
My photo
By Matrix
20th Oct 2021 21:09

I have to admit I got a bit excited when he replied so quickly, didn’t mean to offend anyone. Certain posters are known to have certain expertise, I hope it’s ok to say that.

Happy to open up the discussion before offending anyone else! Thanks in advance for any input.

Thanks (2)
Replying to AdamMurphy:
avatar
By Paul Crowley
20th Oct 2021 21:27

Good one
Agree that the dragons get difficult if a preference is indicated before decision time. Usually results in prior offers being withdrawn.

Still we are a bit more thick skinned and get F all in the way of profits or shares in the business being discussed

Thanks (0)
Replying to Matrix:
RLI
By lionofludesch
21st Oct 2021 07:13

Matrix wrote:

Thanks Lion, I was hoping you would see this.

1) So I don’t need to ask for a copy of the partnership 20-21 tax return? Or you think I should since this should include zero profits for this partner even if they won’t agree to the partner’s self assessment?

2) The partner is not going to put in a claim so it won’t be in the partnership books. It is a new client and I have told him that he isn’t even entitled to tax relief on £6 a week.

If the partners agreed to put it through the return, he will get his relief. He'll charge 48 x £6 in the December 2021 accounts, and 2/11 of that will be allocated to 2020/21. It'll be deducted from his overlap relief, of course.

Your bigger problem is 2021/22. He needs the first 12 months profits, which will cover Jan 2022. They'll be on the 2023 return, the deadline for which is January 2024.

Thanks (0)
Replying to lionofludesch:
My photo
By Matrix
21st Oct 2021 07:27

Thanks but he isn’t going to claim it from the partnership.

Good points re timings of accounts, you see partnerships are odd.

His profit allocation is equal to his fixed monthly drawings (subject to a few clauses on losses etc) so I will have to estimate returns based on this. I didn’t mention this in the OP since I would look like an idiot using drawings but then I looked like an idiot anyway.

Thanks (0)
Replying to lionofludesch:
avatar
By Paul Crowley
21st Oct 2021 09:40

I dislike daft dates

But the ye 21 tax return does need an estimated entry is my thinking.

Thanks (0)
avatar
By Paul Crowley
20th Oct 2021 21:16

If you do not act for the partnership then you just meekly ask to see the Partnership tax return and either accept or challenge the allocations made by the the person who prepares the partnership return.
Partnership and partners expenses go on the partnership return, other than interest on loans to the partnership or to fund the acquisition of goodwill.

Thankfuly I now have only 8 parnerships left, all from over a decade ago
Companies make so much more sense. Joint and several being a daft thing to voluntarily take on.

Thanks (1)
Replying to Paul Crowley:
My photo
By Matrix
20th Oct 2021 22:15

Thanks. I find partnerships pretty odd. There won’t be any allocation though for 20-21, so wasn’t sure whether to wait for the partnership return before preparing the partner’s tax return.. This is what I was asking in 1).

My experience is that professional partnerships don’t prepare their tax returns early.

Thanks (0)
Replying to Paul Crowley:
RLI
By lionofludesch
21st Oct 2021 07:18

Paul Crowley wrote:

Companies make so much more sense. Joint and several being a daft thing to voluntarily take on.

Partnerships can work fine where there's a non-business connection. Husband and wife is the classic example.

I wouldn't recommend them generally, though. And I certainly wouldn't like to take on a partner's return where I wasn't acting for the partnership.

Thanks (0)
Replying to lionofludesch:
avatar
By Paul Crowley
21st Oct 2021 09:51

A client joined an LLP
Worst job in a while
The admin partner of LLP did it all DIY
Lots of errors and late filing penalties
The accounts for Co House were to the Co house date
The accounts to HMRC were to 31 March

He could not understand why this was wrong
Add to that the LLP was having tax deducted under cis
The cis deductions were shown on the accounts as a partnership asset, but allocated to the partners on the return

We parted company

Thanks (1)
avatar
By Calculatorboy
20th Oct 2021 21:21

Oh dear ...and you are seriously in practice?

Thanks (0)
avatar
By Calculatorboy
20th Oct 2021 21:29

Have look at the p/ship pages..box 9 might ring a bell

Thanks (0)
Replying to Calculatorboy:
My photo
By Matrix
20th Oct 2021 22:18

I was just wondering if I needed a copy of the partnership tax return as this could hold up the partner’s tax return. I am sure I can manage the partnership pages.

I now know why you are the most censored poster.

Thanks (0)
Replying to Matrix:
RLI
By lionofludesch
21st Oct 2021 07:02

Matrix wrote:

I was just wondering if I needed a copy of the partnership tax return as this could hold up the partner’s tax return. I am sure I can manage the partnership pages.

Partners should be provided with a copy of their allocation. It's all they need.

Thanks (0)
avatar
By Tax Dragon
21st Oct 2021 10:12

As AFKA-Pinkboy says, it's box 9.

Given the fixed profit share, I'm guessing box 9'll be easy (if still provisional/estimated).

Given the fixed profit share, I'm also guessing other partnership info that might otherwise have been needed (eg capital gains in the period to 5 April) don't apply.

In short, I think you're worrying about nothing.

Thanks (0)
Replying to Tax Dragon:
My photo
By Matrix
21st Oct 2021 14:26

Welcome back TD.

Not really worrying. Partner has now sent his partner page from the partnership return. It is all blank and he didn’t know why I wanted it but glad I asked on here that this was a reasonable request.

Thanks (0)
avatar
By John R
21st Oct 2021 11:02

You need to provide the partnership accountant with details of the personally incurred practice expenses on an accounting year basis. He will then incorporate this within the partnership return and your client should then get the benefit of the personal expenses as they should be deducted in arriving at his share.

Thanks (0)
Replying to John R:
My photo
By Matrix
21st Oct 2021 14:28

Thanks, this is very helpful. His profit share is fixed but I will see if there is any wording on claiming expenses in the partnership agreement, even though he doesn’t want to do so.

Thanks (0)
Replying to Matrix:
RLI
By lionofludesch
22nd Oct 2021 10:12

Matrix wrote:
His profit share is fixed ...

Ach - you're grand then. You should be able to make a decent stab at the first twelve months' profits.

As to the home expenses, I wouldn't rock the boat for a few quid.

Thanks (0)
Replying to lionofludesch:
avatar
By Tax Dragon
22nd Oct 2021 11:24

lionofludesch wrote:

As to the home expenses, I wouldn't rock the boat for a few quid.

More to the point, referencing

Matrix wrote:

I will see if there is any wording on claiming expenses in the partnership agreement, even though he doesn’t want to do so,

I wouldn't be offering legal advice that my client had specifically asked me not to provide.
Thanks (0)
Replying to Tax Dragon:
My photo
By Matrix
22nd Oct 2021 12:31

I won’t be offering legal advice, just saying that he can’t claim them in his tax return. Can’t I look at the partnership agreement since I have a copy, I am quite nosey?

Thanks (0)
Replying to Matrix:
avatar
By Tax Dragon
22nd Oct 2021 12:40

Lion's approach was quantum-dependent. I was merely reminding him of a bigger point of principle. Sometimes I think Lion struggles to understand points of principle.

You can nose away. No skin off mine.

Thanks (0)
Replying to Tax Dragon:
RLI
By lionofludesch
22nd Oct 2021 13:52

Tax Dragon wrote:

Lion's approach was quantum-dependent. I was merely reminding him of a bigger point of principle. Sometimes I think Lion struggles to understand points of principle.

I understand them. But they're useless unless they're quantum-dependent too.

Quantum is Question 1. Is it enough to make me care ?

Thanks (0)
Replying to lionofludesch:
avatar
By Tax Dragon
22nd Oct 2021 14:09

You prove my point, thank you. Your principles aren't principles if they're for sale - or need to be bought.

Thanks (0)
Replying to Tax Dragon:
RLI
By lionofludesch
22nd Oct 2021 14:20

Tax Dragon wrote:

You prove my point, thank you. Your principles aren't principles if they're for sale - or need to be bought.

Fair enough.

Thanks (0)
Replying to lionofludesch:
avatar
By Hugo Fair
22nd Oct 2021 14:50

Interesting to see the return of philosophical discussions!

Personally I'm with TD in that I prefer 'absolutes', but of course I live in a world that values pragmatism.
This was brought home to me when, in one of my many side-jobs a little over 20 years ago, I was lead designer for a major new Payroll system ... and put a LOT of effort into ensuring full compliance across some fairly obscure scenarios.
So I was annoyed to find the lead developer putting in a lot of 'over-ride back-doors' (places where you enter a value that over-rode the value carefully created by the system following my specified rules).
He won (if only on the basis that his approach didn't invalidate mine - although I maintained that it cluttered the product and had the potential to confuse users).
And the net result ... I still believe that my adherence to the absolute was correct, but 20 years later there are many users of (later versions of) the software that have on occasion been very happy to have the option to subvert my purist design!

And the moral? Nothing to do with which 'side' was right - more that the real need for the non-absolutist approach only arose in situations caused by HMRC's inability to adhere to their own rules within their own systems!

Thanks (0)
Share this content