A father and son partnership want to allocate more profit to the father than the son, as this is beneficial for tax purposes due to other income the son has. They want to split it 80/20 to father and son. However the son draws much more money out of the business than the father, in reality probably about 20/80 in favour of the son, and hence his capital account would soon become overdrawn if the actual drawings were recorded.
If however the drawings were allocated along the lines of the 80/20 profit split so that the accounts looked sensible, would this cause issues if they had a tax investigation as the stated drawings would not match the actual drawings from the bank? Im assuming the father could say he gifted his money to his son and assuming he lived the relevant amount of time this would be ok for inheritance tax purposes, but I just wondered what people's opinions are on whether HMRC would say it was tax evasion if the drawings on the accounts dont tie in with the actual drawings taken. ? Obviously I am aware that you are taxed on profits, not drawings, but would HMRC smell a rat if the son allocates profits on the accounts of say £7000 and drawings to match, but in actual fact draws out £28,000?
If so, what other options can people suggest (other than taking drawings by cash) in order to achieve the desired profit split but not limit the son to the drawings he wishes to take? I dont really want the son's capital account to be massively overdrawn and the father's massively in credit. Any ideas?