Partnership Self Assessment Tax Return

[Kingdom34]

I have a simple question enough and I don't believe I wrote up a Partnership agreement at the beginning specifying the % profit split

Basically me and my Partner have a business, 1st year I split the profit on our Tax Return 50/50. For example I earnt £30k, she earnt £20k and a profit of £1k I was expecting to pay 20% tax, but we ended up paying near on 50% tax on the profit. Am I right in thinking it takes into consideration your combined wage - £50k then what tax bracket you come under at this point, ie higher tax bracket.

This time round, can I split it say 70/30 or 80/20 in her favour as she has not worked a full year of employment in her full-time role (we both have full-time jobs, this is our side business) plus she has carried out a higher % of the actual work involved in this business, due to her having more time free to do so?

If for example for this year her wages were half the previous year, would it have any effect on how much combined tax we paid if I used this 70/30 or 80/20 profit split?

 

[Skidder]

You have quite a bit of flexibility to apportion profits as a partnership.

 

[booyaka]

Maybe spend some money on an accountant instead of paying a whack of tax??

 

[Kingdom34]

Thank you. My profit isn't high enough to hire an accountant at this present moment to be honest.

 

[VincentHanna]

Really? I pay £100 a month for a guy who covers my business VAT and corporation tax and myself for Self assessments.

 

[Kingdom34]

Really? I pay £100 a month for a guy who covers my business VAT and corporation tax and myself for Self assessments.

Yes see original figures, £100 a month is £1200 a year meaning all profit gone.
This is a partnership.

 

[VincentHanna]

Oh, so you draw a salary from this? Sorry I misunderstood your first post.

Could be more tax efficient for you to form a ltd company and pay your annual allowance in salary, that then allows you £5000 tax-free in dividends and the remaining tax will be 7.5%.

Though the company then pays corporation tax anyway.

 

[booyaka]

Really? I pay £100 a month for a guy who covers my business VAT and corporation tax and myself for Self assessments.

similar - I've just gone LTD and pay a similar amount for the same service.

 

[Kingdom34]

Oh, so you draw a salary from this? Sorry I misunderstood your first post.

Could be more tax efficient for you to form a ltd company and pay your annual allowance in salary, that then allows you £5000 tax-free in dividends and the remaining tax will be 7.5%.

Though the company then pays corporation tax anyway.

No no sorry ive confused you. We both have full time jobs, this Partnership is in addition to these in the form of a side business.

 

[booyaka]

No no sorry ive confused you. We both have full time jobs, this Partnership is in addition to these in the form of a side business.

sorry if I'm missing the point here - you both work fulltime, you then do another job/role/situation as part of a partnership with your wife and your profit for the year is £1000 total from the partnership??

IF that's the case - why would you do another role/job ontop of your fulltime work to earn £1000 profit - hardly seems worthwhile?

 

[Kingdom34]

sorry if I'm missing the point here - you both work fulltime, you then do another job/role/situation as part of a partnership with your wife and your profit for the year is £1000 total from the partnership??

IF that's the case - why would you do another role/job ontop of your fulltime work to earn £1000 profit - hardly seems worthwhile?

Yes to first sentence

Why not to the second sentence, there are fixed and variable costs to the business. I could be working 10 hours a year so a Profit of £1000 is pretty good.

All I'm after here is some advice please on.

Is the combined full time jobs taken into consideration as a whole eg 2 x full time jobs = £50k. Puts us in the higher tax bracket and then the £1k is taxed accordingly or is it a case that it would be £500 plus a £25k full time job and the same again = tax at the lower rate threshold?

As it seems last year it was the former when I received our tax bills.

 

[booyaka]

Yes to first sentence

Why not to the second sentence, there are fixed and variable costs to the business. I could be working 10 hours a year so a Profit of £1000 is pretty good.

All I'm after here is some advice please on.

Is the combined full time jobs taken into consideration as a whole eg 2 x full time jobs = £50k. Puts us in the higher tax bracket and then the £1k is taxed accordingly or is it a case that it would be £500 plus a £25k full time job and the same again = tax at the lower rate threshold?

As it seems last year it was the former when I received our tax bills.

your tax as individuals - not combined. Not sure what happened last year with your tax bills but your taxed on your individual earnings over all jobs/parnterships etc - so it's £25k plus £500. I'd review how you ended up paying the tax your claim you paid last year.

 

[Kingdom34]

your tax as individuals - not combined. Not sure what happened last year with your tax bills but your taxed on your individual earnings over all jobs/parnterships etc - so it's £25k plus £500. I'd review how you ended up paying the tax your claim you paid last year.

Thanks for clarifying....this is exactly what I thought, it worked out combined we paid almost 50% tax on a profit less than £1k last year