Partnership payments

Partnership payments

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A partner submits invoices for work she has done. What is the double entry for the payments she receives and what are the tax implications.
George Noble

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By AnonymousUser
03rd Jan 2002 17:02

Equity
This is rubbish. The client is totally failing to understand the nature of partnership. If she is an equity partner then her income is her profit share. Anything that she takes out is drawings. If she wants to waste time invoicing the partnership of which she is a member then the invoice should be posted to her drawings or, better still, used as hamster bedding. A partner's transactions with the partnership are either sales of goods (possibly intangibles) or they are capital account items.
This reminds me of the otherwise apparently intelligent client who had a schedule A property and wanted to charge a figure in the rental income accounts for the time that he had spent working on doing it up. He could not see that this was stupid because he would then have moved the amount from rent into earnings and would be, at best, no better off and, at worst, out of pocket for national insurance reasons. What a prat.

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By Accounting WEB
03rd Jan 2002 19:22

Common mistake!
Whilst I agree with the above, this seems to be about the most common mistake that self-employed people (or partners) make- mistaking their drawings as "wages" (and describing it as such in the cash book too) and believing that this is what they are to be taxed on. I think it stems from the fact that an amount of cash is taken out of the business bank a/c and banked in their personal a/c, which on the surface, "feels" the same as your employer taking an amount from his bank and paying it into the employee's, every month/week.
I try and make a point to explain this to new clients starting in self employment so they're au fait with this from the start.

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By neileg
04th Jan 2002 11:36

Woah, boys!
While Tom and Phil are correct in what they say, it is possible for a situation like this to be legally valid. The question depends on the legal entities involved.

It has long been established that there is no difference between a sole trader as a business and the individual who is the sole trader. Thus the idea of a sole trader being paid wages is a legal nonsense.

However, the legal position of a partner and the partnership is not quite so clear. It is perfectly possible for an individual to be a partner in a business and at the same time be a sole trader or partner in another business. In either of these situations, there could be a legitimate business relationship between the original partnership and the other business. If this were true, then the bookkeeping would be exactly the same as with an invoice from a third party. If the partner chose not to draw the cash, it would be credited to her capital/current account (however the partnership records are constructed).

What would be a nonsense is for the partner to be attempting to invoice for the time that she had spent on partnership activities. In that case there would be no payment for time, and the materials would be charged to P&L and paid in cash/credited to partner's current account.

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