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Partnerships - accounting for WIP

Partnerships - accounting for WIP

We act for a very active professional practice which is growing, and has partners leaving and joining fairly frequently as a result of growth. The implications of the requirement to value work in progress and spread the tax consequences over ten years are far reaching, and very difficult to see a solution which will be equitable to all partners.
Do you have any advice please?
Lyn Kendry


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28th Jul 1999 11:58

Equitable treatment of the catching-up charge
Lyn, My advice in such a case would be to use a special undesignated capital account and to brief the firm as to how this should be managed. Full details are available in the ICAEW Tax Digest, "The new rules for taxing profesionals' that I authored last year.

Mark Lee
Lead Tax Partner - Professional Practices Group
BDO Stoy Hayward, London.

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18th Oct 2014 08:36

The essential difficulty is that the partners who are credited with the upward revaluation for accounting purposes will not necssarily be the same as those who pay tax on it over the next 10 years. So the solution was to credit the revaluation surplus net of tax and release the tax provision ove the next ten years to those partners being taxed on the catch-up charge. That I imagine is what Mark is recommending.

But how you deal with it now if the revaluation was originally credited gross, and you don't have a tax provision to release, is a different matter.

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