Morning
I am reviewing the accounts for a partnership (not an LLP) who have recently appointed a new partner. Previously this partner was an employee of the business.
This new partner is included on the partnership agreement and business stationary, shares in profits and losses and their actions bind the firm.
The new partner works 5 days a week, three of these are assessed as a profit share; however two of these they are still paid as a PAYE employee.
My feeling is, now that they are an equity partner, they can no longer be a salaried employee subject to PAYE, but a partner taxed on their profit. Is this correct? I cannot find any HMRC guidance which prohibits taking a PAYE salary when a partner (although I thought this was a basic principle?).
The business has agreed to stop this arrangement but would just like reassurance that my gut feeling is accurate and I am not missing anything (which is entirely possible).
I am aware of other complications in this arrangement, such as the legal ramifications of asking a partner to leave if they are still protected by an employment contract, but just wanted to check this point regarding the salary.
Thank you in advance.
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No paye is required
You can have a Salaried partner but that salary should not be paye'd.
If a partner has any entitlement to a variable share of profits/losses e.g. %age then PAYE does not apply Any 'fixed salary ' payable is just treated as a prior share in the tax comp.
If a partner is only entitled to a fixed salary PAYE still applies.
