Partnership Wages

hanalav123

Hi I was wondering if anyone could help me. I have a query.

Two partners start a partnership.

During the first year the profits will be unknown until the year end. So how does each partner earn a living without being able to take drawings from profit? Can the partner/s go on the PAYE Scheme and take wages in the first year?

Thanks.

qwerty

Hi

No, the partners cannot go onto PAYE. The partners can take drawings from the business even though they do not know the profit. However, they can obviously only take drawings if they actually have the cash available to do so.

I believe you may be getting mixed up with limited companies, where shareholders can not take dividends without having sufficient profit to do so?

T.C.

Usually a partnership will set up with, say, a 50:50 split on profits. Each partner would then take drawings per week/month, which don't have to be the same. At the end of the year the profit is calculated and split between them and this is set against their drawings. Current accounts can then be maintained to show who is owed money from the partnership and how much. Hope that helps.

hanalav123

Hi thanks for your replys. They were very helpful. Just one last thing, what happens if the business has made a loss, does this matter? So throughout the year a partner has say drawn £2,000 but the business made a loss will there be tax to pay on the drawings?

Thanks in advance.

Gem7321

Drawings are not taxed, only profits are taxable. Drawings are shown on the balance sheet to reduce the partners capital.

When a loss has been incurred the loss will be split between the 2 partners eg. on a 50/50 split and this will further reduce the capital.