As annuities paid by current partners to retired partners are not subject to PAYE, I wondered how the practicalities work.
I'm thinking that the partner gets basic rate tax deducted from the payments and this goes on a R185 form at the end of the tax year. A copy of the R185 goes to HMRC with a covering letter and a cheque for the tax.
For the current partners, the annuity is added back for tax purposes and shown separatly as 'Partnership trade charges'. When this flows through to their personal Tax Returns, they get higher rate relief on page AI2.
Can anyone confirm that I am going along the right lines?