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Sole trader to partnership

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A sole trader draws his accounts up to 31 May. His wife may join as a partner on 1 Oct 21.

Thanks in advance for any assistance with the basis periods.

Profits approx £15k a month so this is the first step in working out timings and benefits; overlap profits £30k. (Incorporation not a goer.)

Him:

2021-22: Accounts to 31/5/21

2022-23: Profits 1 June to 30 Sept in self employment. Share of Profits 1 Oct to 31 May 22 in partnership section.

Can't use overlap profits b/f as no change in accounting date. If change the following year to, say, 31 March, then can use overlap relief.

Her:

2021-22: Share of Profits 1 Oct 21 to 5 April 22

2022-23: Share of Profits 1 Oct 21 to 30 Sept 22 as first 12 months.

If change the year end in due course then her overlap profits can be used.

Replies (9)

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RLI
By lionofludesch
17th Jul 2021 07:50

Looks fine to me.

Current profits seem to be about five times overlap relief. Looking ahead, how do you intend to manage that?

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By Matrix
17th Jul 2021 16:17

Thanks. Won’t rush into changing year end, probably wait for a full post Covid normal year and do it the year before retirement. Even if he ended up with 12+10 months less overlap he would still be paying less tax that year than he is paying now.

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By lionofludesch
17th Jul 2021 17:27

It'd depend on whether the partners foresee profits increasing indefinitely or reducing as activity reduces approaching retirement.

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By Geoff56
19th Jul 2021 10:40

I may have misunderstood the way you intend to report 'His' profits for 2022-23 but I don't believe you should split them between the S/E and partnership sections. I think the whole accounting year to 31/5/22 will be reported through the 2023 partnership tax return and then the partnership section of the SA100s. See page 10 ofhttps://assets.publishing.service.gov.uk/government/uploads/system/uploa...

I am open to correction, but I understand this to be the way it should be reported. It's a while since I had to do one of these.

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By Matrix
19th Jul 2021 11:59

Thanks Geoff. It is hypothetical at the moment as they don’t like change. The numbers point towards a partnership so that is all I am doing at the moment. I will look at how to complete the partnership pages if they go ahead. I just wanted to check 30 Sept wasn’t the end of an AP for him so he gets taxed on profits to 31 May either way.

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RLI
By lionofludesch
19th Jul 2021 12:26

Matrix wrote:

Thanks Geoff. It is hypothetical at the moment as they don’t like change. The numbers point towards a partnership so that is all I am doing at the moment. I will look at how to complete the partnership pages if they go ahead. I just wanted to check 30 Sept wasn’t the end of an AP for him so he gets taxed on profits to 31 May either way.

He does - but the profits may be different if a partner is admitted mid year.

I would tend to prepare accounts to the date of admission of the new partner. Nothing to stop you preparing accounts to 30 Sept 2021 and then returning to 31st May 2022 if that's what suits you.

But - much depends on the numbers. It should be easy enough to prepare accounts under both plans and see what works best.

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By Matrix
19th Jul 2021 12:35

Thanks Lion. So they could change year end to Sept and he gets taxed on profits 1 June to 30 Sept in 2021-22 plus May 21 less overlap? I don’t know if he will believe that he is saving tax (in the long term) if his profits are over £200k.

But if they don’t change year end then the profits June to Sept are not taxed until 2022-23?

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By lionofludesch
19th Jul 2021 12:54

At £200,000, he probably needs to start sharing his profits as soon as possible.

Why are you waiting until October ?

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By Matrix
19th Jul 2021 13:51

I would like a few more normal months to look at first, then have to do the analysis, only meeting end August and I don’t think he will make a decision there and then. Also don’t want to recommend earlier and they miss any grants etc. if they had to close or furlough staff.

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