Partnership Return or SA Return?

How should a partner continuing as a sole-trader report his profits?

Didn't find your answer?

So BIM82225 tells us that "Where there is a partial change in ownership, so that at least one partner carries on the business both immediately before and immediately after the change, and the partnership carries on the same business both before and after the change, the business is treated as continuing" and that "The commencement and cessation rules however apply to individual partners joining or leaving the partnership." BIM82260 states that a single partner continuing the trade alone has no discontinuation in his notional trade.

Facts of the case: Long established partnership (two partners, 10 years+), accounts prepared to 30th April each year. Partner B leaves the partnership on 30th April 2016, which coincides with the 2016/17 basis period. Partner B takes the same amount of profit for 2016/17 as he would have had he remained a partner. Box 9 of the Partnership Statement (of the 2017 partnership return) populated with leaving date 30 April 2016. There are no overlap profits. 

Q1: Does all that in the paragraph above sound correct? Or am I missing something vital?

Q2: How will Partner A, the partner continuing as a sole trader, return his y/e 30 April 2017 profits for 2017/18? Will he use a partnership return (with one partner, himself) or will he use the self-employed pages of his SA return?

Many thanks.     

Replies (32)

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PJ
By paulgrca.net
19th Jan 2018 13:01

You really do not have a clue!
This is really basic stuff for anybody working in general practice.

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Replying to paulgrca.net:
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By I'msorryIhaven'taclue
19th Jan 2018 15:06

Well the last time I came across this one could elect to make a (written letter) continuation election for a partnership's tax (yes, yes, way back during pre 1997 SA). It's a lot simpler these days now that the default is a continuation and the complication of PYB basis is removed.

I know enough not to make 31st March 2017 the partnership split date, but am unfamiliar with the ropes as to how said continuation is presented in next year's tax return(s). I'm guessing one reverts to an SA return, but wouldn't be at all surprised to hear otherwise.

Thanks for your input. It's very good of you to reply during your lunchtime on a Friday when the rest of us are out socialising.

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Replying to I'msorryIhaven'taclue:
RLI
By lionofludesch
19th Jan 2018 15:01

I'msorryIhaven'taclue wrote:

Well the last time I came across this one could elect to make a (written letter) continuation election for a partnership's tax (yes, yes, way back during pre 1997 SA). It's a lot simpler these days now that PYB basis is removed.

You could - but that didn't mean you kept submitting partnership returns.

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Replying to lionofludesch:
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By I'msorryIhaven'taclue
19th Jan 2018 15:23

Yes, and thank you Lion; I should have thought that through. TBH it was lazy of me to invite others to do my thinking, but tax return fever has hit and I was hoping for a heads up on anything glaring I had overlooked. The client(s) have sourced a more "with-it" tax adviser (at their local boozer, I suspect) and became rather sold on a 31st March 2017 end to their partnership (which I'm discounting on the basis that their most recent accounts that they've bothered to cobble together end on 30th April 2016). All of which has left me at sixes and sevens.

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Replying to I'msorryIhaven'taclue:
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By I'msorryIhaven'taclue
19th Jan 2018 16:41

btw now we're up to 20 posts I hope you're taking note Paul that it's not as simple as it first appears.

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Replying to I'msorryIhaven'taclue:
Portia profile image
By Portia Nina Levin
19th Jan 2018 16:53

I think the 20+ posts are more a measure of the stupidity, rather than the complexity, to be honest.

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Replying to Portia Nina Levin:
RLI
By lionofludesch
19th Jan 2018 17:01

This isn't a 20 post problem.

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Replying to Portia Nina Levin:
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By I'msorryIhaven'taclue
20th Jan 2018 21:40

Just don't tell Mr T. that. His "Don't mess with me, Fool" contribution has him demoted to my "B-Team".

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RLI
By lionofludesch
19th Jan 2018 13:07

Oh I don't know - let me guess. A partnership return is needed until there's no partnership, I suppose.

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Replying to lionofludesch:
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By I'msorryIhaven'taclue
19th Jan 2018 14:58

Thank you, Lofthouse Lion. I too supposed that, but needed a reliable second opinion. Cheers. Although it's next year's return(s) I'm asking about - and let's face it, neither of us might last that long anyway - my OCD got the better of me.

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Replying to I'msorryIhaven'taclue:
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By I'msorryIhaven'taclue
19th Jan 2018 15:21

I've just filed a zero SA return for a client who retired from self employment two years ago, and I suppose convinced myself that it just might be conceivable that (by the same token) one might be required to continue filing a partnership return on the year following a reduction in partners (from two to one). Topsy-Turvy Land, but the sickness has a hold on me. Lunch, everyone!

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Replying to I'msorryIhaven'taclue:
RLI
By lionofludesch
19th Jan 2018 15:32

As there are no partners, who will sign it ?

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Replying to lionofludesch:
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By I'msorryIhaven'taclue
19th Jan 2018 15:40

The remaining "partner", I suppose? He who is continuing. I know, I know, it's thin logic.

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Replying to I'msorryIhaven'taclue:
By Marion Hayes
23rd Jan 2018 11:45

The nominated partner continues to have sole responsibility, even if he is the one who left.

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Replying to lionofludesch:
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By I'msorryIhaven'taclue
19th Jan 2018 15:40

The remaining "partner", I suppose? He who is continuing. I know, I know, it's thin logic.

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Replying to I'msorryIhaven'taclue:
RLI
By lionofludesch
19th Jan 2018 16:08

He's not a partner. The partnership has gone. It is an ex-partnership.

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Replying to lionofludesch:
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By I'msorryIhaven'taclue
19th Jan 2018 16:16

An ex-parrot?

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ALISK
By atleastisoundknowledgable...
19th Jan 2018 14:04

Is there still a partnership?

If yes, do a SA800, if not, don't.

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Replying to atleastisoundknowledgable...:
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By I'msorryIhaven'taclue
21st Jan 2018 10:19

Well that certainly does sound knowledgeable (in spite of your spelling of your nom-de-plume not being up to much - nice try though).

Seriously, thank you for the extra opinion. I guess I'm fishing for something that's no longer there (since circa 1997, no doubt. Ouch!)

LATE EDIT:
It's a moot point, but one of the oddities I came across whilst going through the various date permutations for these clients is that there are instances described within HMRC's partnership notes of where you might prepare a partnership return even where there is only one sole remaining "partner" even after the partnership proper has ended. Viz if I were to opt for an end to the notional trade on (say) 31st May 2016 rather than 30th April 2016 (with no change in accounting date, so next accounts will be drawn up to 30th April 2017 ):

On Page PTRG9 under "Changing between self employment and partnership":
If the partnership ceased between the accounting date in 2016–17 and 5 April 2017, and:
• one of the members of the partnership carried on the business thereafter as a sole trader, and
• accounts covering the period up to the date the partnership ceased were drawn up to a date after 5 April 2017
in addition to completing a set of Partnership Trading pages for the accounting period ended in 2016–17, also fill in a set of Partnership Trading pages for the accounting period ended in 2017–18 which covers both the period to the date the partnership ceased and the period thereafter when the business was carried on by a sole trader.

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By Marion Hayes
19th Jan 2018 16:00

Partnership ceased 30/4/16 so 16/17 is the last partnership return as long as you enter the cessation date in the box.
Partner B left, so he gets to apply cessation rules to his profit share in the 16/17 return. Why is there no overlap if the year is 30/4?
Partner A has to show commencement as a sole trader in his 16/17 return but he ticks the box that says there is no need to enter any income details unless he takes this opportunity to change his year end.
So his 2016/17 return shows full partnership profit share, and a nil sole trader page, but you should put on it any overlap he is still carrying forward.
017/18 will then have a sole trader page only with trading details of the year to 30/4/17 as usual.

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Replying to Marion Hayes:
RLI
By lionofludesch
19th Jan 2018 16:16

Marion Hayes wrote:
Why is there no overlap if the year is 30/4?

Maybe they made a loss in year 1, whenever that was.

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Replying to lionofludesch:
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By I'msorryIhaven'taclue
19th Jan 2018 16:18

First and second "year" losses, way back when, so no overlap profits.

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Replying to I'msorryIhaven'taclue:
RLI
By lionofludesch
19th Jan 2018 16:23

Fine - just so long as way back when isn't as way back as 1997.

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Replying to lionofludesch:
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By I'msorryIhaven'taclue
19th Jan 2018 16:38

Urghh, good point Lion. A quick look at the old scoreboard tells me 2003, fortunately, was their first bash at this business.

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Replying to Marion Hayes:
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By I'msorryIhaven'taclue
19th Jan 2018 16:36

Marion Hayes wrote:

Partnership ceased 30/4/16 so 16/17 is the last partnership return as long as you enter the cessation date in the box.

Thank you Marion, cessation date 30/04/16 entered to both partnership return field and SA return field too.

Marion Hayes wrote:
Partner A has to show commencement as a sole trader in his 16/17 return but he ticks the box that says there is no need to enter any income details unless he takes this opportunity to change his year end.

Ahha, potential gold dust. But need Partner A elect to (re)commence as a sole trader in his 16/17 return (or for that matter his 17/18 return) if he is instead able to rely on the default continuation basis that is set out in BIM82225? (see original question, above).

Marion Hayes wrote:
So his 2016/17 return shows full partnership profit share, and a nil sole trader page, but you should put on it any overlap he is still carrying forward.

No overlap profits for either partner (because there was a first period loss). But I have indeed entered his (the continuing partner's) full partnership share for y/e 30/04/16 to his 2016/17 SA return.

Marion Hayes wrote:
017/18 will then have a sole trader page only with trading details of the year to 30/4/17 as usual.

OK, but does he really need to "recommence" (see above - BIM 82225). Might he not simply continue with year ended 30/04/17 trading profits (as a sole trader)?

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Replying to I'msorryIhaven'taclue:
By Marion Hayes
19th Jan 2018 19:22

Not recommencing. just explaining why he doesn't have to fill the gap as partnership page shows cessation date

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Replying to Marion Hayes:
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By I'msorryIhaven'taclue
21st Jan 2018 11:06

Marion Hayes wrote:

Not recommencing. just explaining why he doesn't have to fill the gap as partnership page shows cessation date

Ahha, thank you Marion. So although Partner A has a commencement date of 1st May 2016 in Box 6 ("start date of business") of his 16/17 SA103F, the Revenue won't necessarily regard it as a new business commencement by trying to apply first year basis period rules. I think the penny's starting to drop.

Marion Hayes wrote:

Partner A has to show commencement as a sole trader in his 16/17 return but he ticks the box that says there is no need to enter any income details unless he takes this opportunity to change his year end.

Ok, so I'm guessing that must be box 14 to tick "If you provided information about your 2016-17 profit on last year's tax return, put X in the box" (even though he didn't provide information about his 2016-17 profit on last year's tax return, but instead in the partnership pages of this current year 2016-17's tax return)? I can see that would achieve the desired result, even though the box's caption (and for that matter its notes) indicate, upon literal interpretation, not to do that.

Have I understood correctly about using box 14? (ie when you said "he ticks the box that says there is no need to enter any income details"). Many thanks for your patience.

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Replying to I'msorryIhaven'taclue:
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By I'msorryIhaven'taclue
22nd Jan 2018 13:11

BUMP Anyone, please?

SOLVED: In the absence of any circumstances outlined by PTRG9 (by which one would be required to continue submitting a 17/18 partnership even though the partnership would have reduced to just one partner during [say 31 May 2016] 16/17) the consensus is to "close" the partnership by entering a cessation date of 30th April 2016 to box 3.8 of the 16/17 partnership return.

SOLVED: Partner B is a round peg: ceased to be a partner 30/04/16 (box 9 of Partnership Statement and box 4 of Partnership Section SA104 of 16/17 Personal Return).

UNSOLVED (the original question subheading): Which leaves Partner A as the unsolved square peg. Could anyone please confirm whether I have understood correctly what Marion has said, esp regarding box 14 of Partner A's 16/17 personal return?

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By Marion Hayes
23rd Jan 2018 12:02

Hi. Back again. Sorry - got caught up in the January tax returns combined with grandchildren and birthday celebrations.
Which software are you using?
I have digita and the partnership profit share entry page has a box to tick if business changes from a partnership to a sole trader.
Am just going to set up a test case to see what schedules the software generates

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Replying to Marion Hayes:
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By I'msorryIhaven'taclue
23rd Jan 2018 13:20

Hi Marion, many thanks. Many Happy Returns to you (or your grandchild). I'm very grateful for your having returned.

I'm using Ftax, which so far as I can tell mirrors exactly HMRC's partnership returns (links to HMRC pdfs below):

short p/ship: https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...

full p/ship:
https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...

I've been unable to find a tick-box like the one you describe in Digita for situation where partnership changes to sole-trader, so have instead (using the short p/ship return) entered a date of 30th April 2016 to box 3.8 "Date of [Partnership] Cessation" (although I wonder about the wisdom of that, given the Digita tickbox you mention and the fact that the partnership is "continuing" for tax basis period purposes, albeit as a sole trader); and again entered 30th April 2016 into box 9 ("Date Ceased to be a Partner [if during 2015/16 or 2016/17]") of the Partnership Statement for Partner B.

I'd tried coming at it from the point of view of Partner A's 2016/17 SA return, but as outlined above in the thread was unable to find a tick-box you had alluded to for "no accounts are due" on a SA103s or SA103F. Could that be another Digita additional box that doesn't feature on the HMRC standard forms (and hence Ftax forms) , I wonder?

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By Marion Hayes
23rd Jan 2018 13:15

Appologies - matters have obviously moved on since I last did this. HMRC guidance now says you don't have both types of schedules in the ongoing partner.
I have set up a test case in Digita and it has an automatic conversion procedure to follow, which results in a partnership return showing a cessation date for the partnership and the leaving partner but no cessation date for the continuing partner. No cessation date on the ongoing partner return and no sole trader pages.
Moving on a year it just creates a new sole trade page with the following year of accounts

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Replying to Marion Hayes:
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By I'msorryIhaven'taclue
23rd Jan 2018 13:46

Marion, you're a star! Thank you so much. Matters have also moved on since I last did this (mid-nineties, pre S.A., when a written continuation election from each partner was the order of the day). Hence I suppose the rotten fruit and hee-hawing from the gallery last Friday.

You've answered my niggling doubts about box 3.8 that I overlapped a post with you on, above: It seems I should indeed be entering a cessation date of 30th April 2016 for the partnership; as well as for box 9 of the leaving Partner B. Thank you Marion (and Digita). And, for the sake of completion for anyone ever relying on this thread, points noted that Partner B has a cessation date entered (of 30th April 2016) to Box 4 of the Partnership Section of his SA return; whereas Partner A's Box 4 is left open.

Of course, although somewhat counter-intuitive it all makes better sense with the certain knowledge that Digita hasn't created a current year 2016/17 sole trader section for the Continuing Partner A. Thank you so much for building a model, and for your kind help Marion.

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