From partnership to sole trader

annemarie

What are the steps to undertake when a partnership of two people ends, with one of the partners continuing on as a sole trader in the same trade in relation to tax?

The partnership has been filing tax returns on a cash basis with no traditional accounts prepared. What happens legally to all the capital items (which have been claimed as expenses under the cash basis system) in the partnership? Would they automatically go to the sole trader or do they have to disposed of (incurring capital gains?) and 'bought back' by the sole trader? I have tried to look for answers on gov.uk but can't find much. Any tips appreciated!

BertDoesBookkeeping

First place to check would be their Partnership Agreement which should outline the distribution of capital on its dissolution.

It's possible that the capital will be split based on the partnership proportions (so if they've always been 60/40, then that; if they've always fluctuated dependent on capital contribution, then that).

That said, you should also be aware of any other terms on dissolution - there may be terms that stipulate all creditors must be settled before it dissolves, for instance.

If there's no partnership agreement, then statute applies. In this case, the Partnership Act 1980. S.32 - 44 should deal with all this.

Hope that helps, but let me know if you need anything else.

Best
Sam

douglasstroud

Hi, agree that the Partnership Agreement is the first place to look

But would this not be seen as a continuation of trade with the Partnership return showing the cessation date and the remaining partner continuing as a Sole Trader with no disposals needed, but as said depending on what the PA says.