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warm Friday afternoon question

warm Friday afternoon question

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Parnership has 4 partners 

Commenced trading 15/2/18 & first accounting date 28/02/19

Partnership tax return period ended 5th April 2018 includes draft provisional profit for the 50 days to 5th April 2018.

Actual accounts for the 11.5 months to 28th Feb 2019 have now been prepared

The actual pro-rated profits to 5th April 2018 significantly less than draft/provisional

Presumably we just submit amended returns for the LLP and individual partners within self-assessment for the year ended 5th April 2018?

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By trust.pem
05th Jul 2019 15:51

I would have done a nil partnership return for 2018 as there was no accounting period ending in that return period.

yes, the tax returns for the individuals for 2018 should be amended to show their respective share of the profits (calculated on a time apportionment basis) for the period to 5 April 2018. These profit shares will be different to those declared on the partnership return (nil).

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By lionofludesch
05th Jul 2019 15:54

trust.pem wrote:

I would have done a nil partnership return for 2018 as there was no accounting period ending in that return period.

Somebody needs to go on a refresher course.

Bless me !!

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By Vile Nortin Naipaan
05th Jul 2019 16:21

I think you must mean fresher course.

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By trust.pem
05th Jul 2019 16:30

Thanks. Has there been clarification on this as HMRC continue to accept nil partnership returns on this basis?

Clearly I don't do enough partnership tax returns

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By Vile Nortin Naipaan
05th Jul 2019 17:02

Clarification? There is nothing in the legislation that is at all unclear.

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By lionofludesch
05th Jul 2019 23:09

trust.pem wrote:

Clearly I don't do enough partnership tax returns

Or sole trader returns either it seems.

Have you not heard of overlap relief ?

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By lionofludesch
05th Jul 2019 15:53

Yes.

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By Tax Dragon
05th Jul 2019 16:06

Divide it by 12.5 instead of 11.5 and you could reduce the profit further.

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By nick farrow
05th Jul 2019 16:24

well spotted Dragon that catches out quite a few people and thanks all for confirmatory vote

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By CJaneH
05th Jul 2019 16:27

Why do accounts to 28th February. For future convenience I would have chosen to 31st March.

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By lionofludesch
05th Jul 2019 23:11

CJaneH wrote:

Why do accounts to 28th February. For future convenience I would have chosen to 31st March.

Why not do them to 28th February ? What's more convenient about 31 March?

Why are you frightened of overlap relief ?

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By nick farrow
05th Jul 2019 16:32

this was a hypothetical situation the actual year end is December as US partners as well thanks CJH

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By Vile Nortin Naipaan
05th Jul 2019 17:08

Do you know about the little-known nil return trick, Nick?

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By nick farrow
05th Jul 2019 17:15

no I don't actually thanks Portia

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By lionofludesch
05th Jul 2019 23:13

Vile Nortin Naipaan wrote:

Do you know about the little-known nil return trick, Nick?

Trader starts 1st May, runs his accounts to 30 April, no year end in the first year so no profits assessable.

Trader loses his personal allowance.

Smashing idea.

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By Tax Dragon
06th Jul 2019 08:08

You are misrepresenting what trust.pem said.

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By lionofludesch
06th Jul 2019 09:38

In what way ?

I'm merely giving a hypothetical scenario which might cost his client thousands of pounds through his misunderstanding of the rules surrounding commencement of trade.

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By trust.pem
06th Jul 2019 09:49

In your hypothetical example I would (rightly or wrongly) submit a nil partnership return. The individuals' personal returns would show their respective profit shares calculated on a different basis period to the partnership return.

I can't see where any of this is costing the clients.

You seem to be implying that overlap profits should be shown on the partnership return.

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By lionofludesch
06th Jul 2019 10:04

In what box would I enter overlap relief ?

Well, thanks for clarifying. I still think you're wrong to submit a nil return for what it's worth.

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By trust.pem
06th Jul 2019 10:06

Tha k you. You and several others it seems. Looks as though I'll have a fun Saturday evening with the TMA.

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By Tax Dragon
06th Jul 2019 10:40

If you find anything definitive in TMA, do please share.

It's been a long time since I've looked at or thought about the question. FWIW (nothing, as this is fractured memory and guesswork, not research), I suspect I wouldn't complete a Nil return myself in the circumstance, but I doubt it's as outrageous a suggestion as the others make out. Certainly didn't merit the dunce remark (and it's no surprise who made that one).

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By cathygrimmer
10th Jul 2019 13:06

I give Nick advice but I was on holiday last week - cooking in 35 degrees heat in Tuscany! He has said that he is happy for me to post on here the advice I have given him today, to facilitate discussion on this point. No doubt some of you won't agree with what I have said but I'm sure we can have a mature discussion about it! I've had a quick look at legislation and referred to it but I haven't done a detailed analysis of all the relevant legislation because the question didn't warrant that amount of time (and cost) so if someone has a more considered answer with other legislative references, I'd be very happy to see it. Here's my view, for what it's worth!:
"The partnership return guidance notes (2018) say:

‘You should return details of the partnership’s trading and professional income and expenditure for the accounting period, or periods, ended on a date in the period 6 April 2017 to 5 April 2018.’

Which sounds unequivocal but it then goes on to say:

If no accounts end in 2017 to 2018
You should try to make sure that there’s at least one accounting period ending in 2017 to 2018. If you don’t, the partners may have to use estimates to calculate their tax liability for 2017 to 2018 and could end up being charged interest if the estimates are too low.

But then, in the same section, says:
If no accounts end in 2017 to 2018 you should:
• provide details of the partnership’s income and expenses for the period 6 April 2017 to 5 April 2018
• enter 6 April 2017 to 5 April 2018 in boxes 3.4 and 3.5

Though clearly you couldn’t enter a start date of 6 April 2017 when the trade commenced during the tax year and the actual income and expenses for the period falling within the tax year may bear no relationship to the taxable figures when the first accounts are apportioned and are highly unlikely to be available.

The legislation in the TMA – s12AB - actually says that a partnership statements should be prepared to show income of ‘the period in respect of which the return is made and each period of account ending within that period”. This wording was substituted for “each period of account ending within the period in respect of which the return is made” in 1996. So arguably that means you do show the income falling within the tax year if there is no period of account ending in that year – but if you interpret it that way then you would surely also have to interpret it as meaning you need to show income and expenditure for an accounting period ending in that year (if there is one) and for the period after the accounting date ends up to 5 April following because the legislation says ‘and’ not ‘or’ - and that is clearly nonsensical!

I believe the simplest way is that you do not submit figures for the accounting period which ended on 31 December 2018 as it didn’t end between 6 April 2017 and 5 April 2018. But the partners should then put estimates in their personal returns to minimise interest and explain this in the white space. Provided HMRC get a partnership return showing all the taxable profits for the first period of account (i.e. the 2018/19 partnership return) and the partners declare the correct amounts, a return has been submitted, no tax is lost and everyone is happy. If you prepare partnership statements showing apportioned profits for a period which didn’t end in the year and then show those profits again on the next year’s returns, I would say you have overstated the tax adjusted profits for the partnership. The profits are, of course, partially taxed twice and an overlap relief figure calculated but not on the partnership tax return and including them twice is going to just cause confusion for the individual partners."

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