Partnership / Self employment?

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT member discussion

One of my clients is a self employed joiner. During 2005/06 for a few months he did some work with another man, under the name xxx joinery. Basically there were no costs and all the oncome was paid into an account in xxx joinery's name & then they drew the money out and split it 50/50. Total income was just under £5k.

When my client came to me asking me to do his tax return he told me about this work and I asked if the partnership had been registered. He said no so we phoned the revenue there and then and registered it.
When he told his partner that it was registered he phoned me and said that his accountant had said to just include the money with the rest of his self-employment earnings.
I tried to contact his accountant but he never returned my calls, so I went ahead and prepred the p/ship return. I saw my client again today & asked him to get his partner to fill in his UTR and NI number on the return so that I can submit it - I'd also done a full copy of the return for his accountant.

I've just had this partner back on the phone being really abusive saying that he never agreed to declaring it as partnership income, that he's not going to give me his UTR and that his tax return has already been submitted and he doesn't think it's fair that he has to pay his accountant to amend it.

As far as I'm aware this is definately a partnership and should be declared as such, and that it's going to look very dodgy now telling the revenue that the partnership never existed! But what can I do? I can't force him to give me his details can I?

Please help :? :? :?

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Partnership / Self employment?

    Your client and his "partner" (or not as the case may be) have to decide between them whether they operated as a partnership or not. If they did, then partnership accounts need to be drawn up. If not then your and your client somehow need to extricate themselves from having to submit a partnership return.

    As there was a joint bank account, that would seem indicative that it was a partnership.

    Let us know how you get on - and sorry not to have been more help!

    Claudia
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Partnership / Self employment?

    Thanks for replying - you're saying that it's their decision whether or not to register as a partnership, have you got anything to back that statement up? I don't mean that in a sarcy way - I would genuinly love to find something that confirms that to get me out of submitting this return, but the two times I've phoned the Revenue's helpline they've said that it was definately a partnership and the return needs submitting. I know to take what they say with a generous lashing of salt, but I can't find anything to contradict it :(
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Partnership / Self employment?

    If they are/were Jo and Jo trading as Bodgit and Run then yes they were a partnership - headed paper, joint bank account etc.

    On the other hand if they were just two blokes who went as a pair on each site, then it might not be.

    Were they subbies? If so what happened to their CIS vouchers? If they as an entity invoiced say £200 and each of them got a voucher for £82.00 net, then I would have thought that you could argue that not a partnership.

    I think that the biggest problem is that having got a partnership UTR out of Revenue it might be hard to get rid of it....

    If they are subbies, what their certs say will, in my humble opinion, be the deciding factor.

    Claudia


  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Partnership / Self employment?

    The work they were doing wasn't taxed under CIS - all their customers were private individuals, so that's a dead end!
    I found something (I think on HMRC website) saying that any 2 or more people carrying on a trade together with the view of making a profit are in partnership. it listed a few excpetions but nothing of relevance to this case.

    thanks though, at least I feel more confident that I have done it right now.

    I just hope that this 'partner' sees sense and co-operates.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Partnership / Self employment?

    You could always go back to revenue and say partner wont co-operate but here is their name and address.... not nice to do, but might be the only answer - actually perhaps a letter saying that it what you will have to do if they dont cough up the necessary info.

    That might work instead? 8)

    Claudia
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Partnership / Self employment?

    It's not just about what's right or correct. If you felt you were dealing with a partnership, then both parties have to be fully consulted.

    I think you'll be fine, but it's a good warning lesson for us all - partnerships have to be treated equally and with respect.


    8)
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Partnership / Self employment?

    claudia, i think that's what I'll have to do if it comes to it - I'd feel awful doing it though.

    and well said baggybooks, I'll certainly double-check before doing that again...
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Partnership / Self employment?

    sorry to drag this up again but i'd put it at the back of the cupboard hoping it would go away but it hasn't!

    I wrote off to the Inand Revenue explaining the circumstances and requested that the income could just be included with my client's other self emplyment income but I've received a reply saying no. This is what I was expecting but I'm pleased to have it in writing to prove to the other partner that I'm right.

    Thing is I don't know what to do next. Should I send him the p/ship return asking him to complete his personal details & forward it to the revenue (so that I don't see his personal details that he wants kept secret)? and say something like 'if you don't submit it within a month I will submit it with a letter explaining that you're not co-operating'. I just know how angry he got before and he knows where I live and to be honest I'd be scared for my own safety if I did that. But I don't know what else to do!

    :cry::cry::cry:
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Partnership / Self employment?

    Hi Jodie

    You poor thing! How about - write a letter to the other bloke's accountant enclosing a copy of the letter from the Revenue. Say that you need his client's UTR (and anything else you need). Explain that you need this as a matter of urgency blah blah blah and send it by recorded deliver. Also say in the letter that on receipt of the UTR you will forward to him a copy of the partnership return, so that it can be included on other bloke's S/A.

    Try and cut the other bloke out of the loop, in the hope that his accountant might be straight :shock:

    If all else fails, you will have to submit a paper return with UTR not known on the other bloke's side and a copy of your letter to the other accountant stapled to it, to prove that you have tried your best -

    Let us know what happens :wink:

    Claudia
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Partnership / Self employment?


    thanks - good idea but not possible I'm afraid - the only details I had for the accountant was a phone number (not even a name) - his wife died and he's since moved house and works from home, although he's apparently not been doing much work since his wife died & has pretty much retired. Anyway his phone number has now changed so i have no contact details at all. I had tried googling his phone number hoping it would link me to a name or something but no luck there :(
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Partnership / Self employment?

    Could this not simply have been a "joint venture"?
    Going back to my study days, didn't we learn how to set up joint venture accounts for individual self-employed people?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Partnership / Self employment?


    I would love for it to be a 'Joint Venture' but I think that the fact that they had a bank account in their trading name points to it being a partnership.

    I don't remember learning about joint ventures - if you know where I can find any info please let me know!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Partnership / Self employment?

    Now you are asking! It was in one of those nice big study books that I learned all about them. I envisaged dealing with joint ventures, but have never come across one in my work.
    I always understood a 'joint venture' to be a 'partnership' for one contract and so long as records were kept separate from the individuals' accounts, then a joint venture could be put in place. The existance of a joint bank account could and should be for that venture only. Does that make sense?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Partnership / Self employment?

    I've had a look on the internet and it seems to be that Joint Ventures are treated the same way as partnerships anyway :(

    thanks though, it could have been the answer to my problems!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Partnership / Self employment?

    I agree with TC.

    I have clients who do Joint Venture projects all the time and set up joint bank accounts for the joint income and expenses. It doesn't appear that they were carrying on a business together with a view to profit, it appears that they were collaborating on a single job.

    I think you were therefore perhaps a little hasty in registering a partnership, certainly without clarifying the position and obtaining an engagement letter with both parties.

    I would suggest the easiest way out would be to include your clients share of income and expenses in his own SE accounts and write to the Revenue stating there was an error and the partnership never commenced trading. Failing that, the submission of a blank partnership tax return with a cessation date should also bury the beast!

    Good luck!



  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Partnership / Self employment?

    From the information Jodie has given, it does look like a partnership - see the following to be sure:

    http://www.hmrc.gov.uk/manuals/bimmanual/BIM72010.htm

    If I've read it right (and put me right if I haven't) if each party meets their own expenses it's a joint venture but I assume that expenses have been met from the joint bank account.

    I would just submit what you have and say that the other partner (if you decide they are definitely in partnership) won't talk to you and let the Revenue sort it out.

    If the other party's accountant says it's not a partnership he will have to justify this.

    Even so I would also ring HMRC explain the whole situation and get their advice first - they may state it's not a partnership and then it's official.

    This has been a really interesting thread to follow so keep us updated.

    Annette
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Partnership / Self employment?

    I don't think it's quite that straight forward.

    The three cases listed by HMRC all had a degree of longevity about them. If I recall correctly, Jodie mentioned it was a one-off job with no expenses anyway. I am sure that, if need be, you could argue the case either way.

    What you really need is the easiest way out of a sticky situation. Declaring the income as a JV will result in no loss of revenue to HMRC so they are unlikely to pursue any course of redress; even if they would otherwise classify the arrangement as a partnership.

    What do you and your client have to gain by getting into an unnecessary battle with the 3rd party, his accountant and HMRC?

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Partnership / Self employment?

    That's why it's so interesting as it could be argued either way.

    I think you are right about HMRC being less likely to challenge it if they get their tax, it would cost them money to just argue a matter of principle but I would love to know what they would classify it as (once in possession of all the facts and having asked the right questions)!!



    Annette

    Edit: That will teach me not to read the whole thread, HMRC have already stated several times that they view it as a partnership - ooops!!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Partnership / Self employment?

    It is certainly an interesting area and there is very little information available on JVs.

    This is probably because there is no legal definition of the term 'Joint Venture'.

    I would never phone up a HMRC phoneline and ask for their opinion. You might as well ask yourself which scenario would result in the most tax and hassle for your client and pick that one!

    The Croner Consulting helpline is always my first port of call for technical advice but their operators tend to use CCH online to search the legislation, which is good for most things, but not necessarily something which is purely defined in case law rather than legislature.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Partnership / Self employment?

    Maybe I've been lucky as I've not found that with HMRC. Last time I had to consult them (regarding a franchise) they actually saved tax!!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Partnership / Self employment?

    Yeh, sometimes you get a good 'un. It's all a bit hit and miss tho.

    If you can get through to an inspector rather than just a regular helpline bod then you can usually get a more intelligible response.

    Just remember whose side they're on!

    :wink:
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Partnership / Self employment?

    I guess that's why - I've always had problems that need specialist help (seems always to be intangibles at the moment)!!

    Are you and I the only ones up this morning???
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Partnership / Self employment?

    hello

    well thank you so much for all your comments - everything you say is what's been going through my head the past few months.

    Yes, i completely realise that I was wrong in registering the partnership in the first place - I had no idea that it was going to lead to so much bother & won't do it again. ever!

    Thanks for the link Annette - I had read it before though & it does say that if net profits are shared out then it is a partnership. I think that this confirms that it definately is a partnership that I'm dealing with, however, as dean says, HMRC are not going to loose any revenue by each party declaring their share of profits.

    I did also phone the Chroner helpline and they confirmed what HMRC said - that it is a partnership and should be treated as such.

    Do you think that if I do just do what dean suggested and file a blank partnership return (just with the other partner's name & address) and include my client's share of the income with his self employment, that there would be penalties if there is ever an enquiry?

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