Partnership help needed please

System
System Posts: 100,537 🤖 Admin 🤖
edited June 9 in General accounting discussion
I am trying to help my partner complete his tax return and I am stuck, please help!
He and a friend had a partnership from 30/04/06-28/02/07. I have set up a code for each partner where I have posted all salaries. There are a lot of items that they have purchased out of their own cash. I have posted these to the same code reducing the amounts received in wages. I am going to show the net figures as the salaries received. Is this correct?
Also they bought a van for £6800 in cash. I have posted 1/2 of this to each of the codes and then the double entry to assets. At the end of the partnership 1 partner gave the other £2000 for the van but I cant figure out how to post this. I know 1 entry needs to go to the sale of asset but not sure where to put the other entry.
Any advice about this would be really appreciated.

Comments

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Partnership help needed please

    When you say "salaries" do you mean drawings. If you do mean drawings these are an appropriation of profit and don't get included in the profit and loss account. Depending if you prepare a balance sheet for the partnership on the tax return, then there is a separate box for their drawings.

    The partnership ceased in February 2007 so I presume it is now a sole trader. The £2,000 sales proceeds would go as disposal proceeds in the sale of vehicles. If it wasn't paid into the bank then it would be debit the receiving partner's drawings and credit sale of assets. It would also be taken into account when calculating the balancing charge/allowance on the partnership capital allowances computation for the cessation period.

    Kind regards
    Steve

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Partnership help needed please

    Thanks, this is what I thought once I got my head around it!. Yes sorry, I do mean drawings. So the amount shown on the return for drawings would be all money received from the partnership less any expenses they had paid from their own cash and these expenses would go to the P & L under the appropriate heading? And the partner who sold their share of the van would have the £2000 included in their drawings.
    I have taken it into account with the capital allowance and in the sole traders accounts.

    Many Thanks for your help.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Partnership help needed please

    Yes that's right.

    Sometimes monies paid personally for expenses are included in capital introduced. If they are minimal, it's usually ok to offset them against the total drawings.

    Steve
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Partnership help needed please

    I need a little more help please. Just to clarify, with regard to the net taxable profit in the income statement I have taken sales, less cost of sales then less all expenses to get to the net profit (not included drawings). Then on the tax return for share of Profit or loss I have taken each partners drawings (which is what they have taken from the partnership less any general expenses they have paid out of their own cash) and added to this the left over share from the taxable trade profits in the income statement.
    I hope this sounds clear. Please could you advise if this is correct? Thanks for your help.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Partnership help needed please

    The way you have calculated profit appears to be ok but please bear in mind that the profit per the accounts is not necessarily the taxable profit - you may have to do some adjustments to this profit to take into account expenses which are not allowable for tax purposes e.g. depreciation, entertaining etc etc. If the profit figure does not contain any disallowed items then it will simply be the profit per the accounts.

    I'm a little unsure as to why you have added back the drawings to profit?? Drawings form part of the profit.

    The drawings total would go into box 3.114 in the balance sheet on the partnership tax return. You would not normally add back the drawings to profit as drawings are not taken into account when calculating net profit.

    Regards
    Steve
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Partnership help needed please

    Thanks Steve,
    I have dealt with the disallowable expenses (and I have added back the loss on the sale of the vehicle). I think what I am trying to do is not just split the net profit 50/50 as each partner has paid for different small items in cash but my partner ended up putting in around £4000 more. After I have got to the net profit I am then taking each partners drawings less what they have spent on allowable expenses and taking this from the net profit. I am then splitting what is left 50/50 and adding it to the drawings less money spent to get each partners taxable profit. Maybe I am doing this wrong? Am I just complicating things?! :)
    Thanks
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Partnership help needed please

    Hi Liz,

    When you get to the net profit you don't deduct the expenses that they have paid for privately.

    The reason is that the expenses have still been incurred for the trade. By reducing their profits by the value of the privately paid expenses you are effectively giving them tax relief twice. Once when you include the expenses in the net profit and then again when you reduce the profit further by the value of the privately-paid expenses.

    For example if you have a taxable profit of £40,000 but £5,000 of expenses has been paid private (£2,500 each) then assuming profits are split 50/50 then £20,000 each would go on their tax return as schedule D1 - the £2,500 each would go in their capital accounts as an introduction.

    hope that helps.


    Kind regards
    Steve
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Partnership help needed please

    I think perhaps I am not very good explaining this! Anyway I have completed it now, just wanted to say thanks for your help.

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