Tax Fairness Question

SpeedFreak · 23 Jan 2022 at 17:04

To be clear, this isn't a point of establishing the right tax payments due, more one of assessing fairness of tax being paid to HMRC by three partners in a property business

A bit of background:

Sibling A - University Degree funded by Student Grant and a higher rate tax payer.

Siblings B & C - University Degrees funded by Student Loans and basic rate tax payers.

All properties are jointly owned. Income goes into a pot and the partnership (not a ltd company) settles all income tax liabilities. Siblings B & C settle their additional student loan repayments that arises from additional property income separately.

Tax liabilities for property profits this year were split as follows:

A. £4600
B. £2300 plus 1000 SL repayment
C. £2300 plus 1000 SL repayment

I have advised that the fair approach to settling this is for the partnership to pay £2300 to each from retained profit and A can then settle the remaining balance as a 40% tax payer themselves.

However, A is saying that the partnership should be paying their entire tax bill. I have challenged this as in my view their personal tax situation is a result of other income sources. Their point is that this burden arises only because they have a share in this business which I feel is irrelevant.

I have countered that if this is the route A wants to take, then the partnership should be also responsible for covering the SL repayments for B&C, with my view that this burden also only arises because they have a share in the business and were also not eligible for student grants, unlike A. I would not view this as strictly correct, but more fair then A's current proposal, however when the student loans are repaid in a couple of years we are facing the same problem. A feels that the student loans are individual issues for B & C.

Any thoughts? Am I being unreasonable, is person A taking the Mick, or are both of us in the wrong?

Stumble Bum · 23 Jan 2022 at 17:10

Sibling A is a ****

cheesyboy · 23 Jan 2022 at 17:11

The tax liability is a personal cost, not a business cost.

Withdrawing profits from the business to pay that is fine, but one person taking more is them taking a bigger share of the profits.

Give everyone £4,600. That's what's fair. Your tax affairs are your own.

Opinion based on: being an accountant, who used to deal with this sort of small business nonsense.

lsg1r · 23 Jan 2022 at 17:12

Personal view, note I'm not an accountant, but do have my own business.

He's having a laugh, he's trying to get his tax paid so he's not out of pocket.

IMO it should basically be covered like this:
Income, minus any expenses, from business is divided equally (I'm guessing it's split evenly) and then each person pays their respective tax bills according to their own personal situations.

SpeedFreak · 23 Jan 2022 at 17:23

He and I are both accountants. As above, my view is that net profits are distributed one third each and tax liabilities and student loan repayments are individual issues. A thinks I'm being problematic as B and C have never raised this issue in the past (been happening for 5+) years. Whereas I feel I am just protecting the interests of B and C (one of which I am married to).

cheesyboy · 23 Jan 2022 at 17:31

SpeedFreak said:
He and I are both accountants. As above, my view is that net profits are distributed one third each and tax liabilities and student loan repayments are individual issues. A thinks I'm being problematic as B and C have never raised this issue in the past (been happening for 5+) years. Whereas I feel I am just protecting the interests of B and C (one of which I am married to).

He's taking more than his fair share and, if he's an accountant, he knows damn well that's what he's doing!

Cheeky ******* owes 5 years of profit split to his business partners. Unless the partnership agreement specifies to split on such a wonky basis (and it's possible it does).

SpeedFreak · 23 Jan 2022 at 17:43

No wonky agreement, in fact I have proposed one in order to split profit in such a way that it maxes B&C to their 20% band which brings down the overall burden of tax ( and is permitted according to HMRC), but he thinks that's a CGT issue (which it isn't).

DeliciousStorage · 23 Jan 2022 at 17:47

SpeedFreak said:
He and I are both accountants. As above, my view is that net profits are distributed one third each and tax liabilities and student loan repayments are individual issues. A thinks I'm being problematic as B and C have never raised this issue in the past (been happening for 5+) years. Whereas I feel I am just protecting the interests of B and C (one of which I am married to).

A is taking the mick, the fact that he's been taking advantage for 5+ years isn't a valid reason to continue it, I'd be suggesting to A that they should compensate B and C for the previous 5+ years underpayment.

Richie · 23 Jan 2022 at 17:55

They should all get the same and then settle their own costs individually, be that higher tax or student loans.

It's not right that the lower tax band siblings subsidise the higher tax sibling bill nor is it fair to ask the non-student loan sibling to cover the student loans of the other 2. It's not Sibling A's fault that B and C couldn't get grants and neither is it B and C's fault that A is in a higher tax band.

I suppose what they could do is pay B and C more to max out their basic band as a group thereby lessening A's tax bill as much as possible (and thereby the group's bill over all) and then splitting the profits after tax equally meaning they all get a little more due to tax savings. (If this makes sense)

Raymond Lin · 23 Jan 2022 at 18:04

Everyone need to settle their own personal liabilities…personally.

That’s the bottom line and nothing more to it.

Jokester · 23 Jan 2022 at 18:12

DeliciousStorage said:
A is taking the mick, the fact that he's been taking advantage for 5+ years isn't a valid reason to continue it, I'd be suggesting to A that they should compensate B and C for the previous 5+ years underpayment.

This.

SpeedFreak · 23 Jan 2022 at 18:17

That's the easy part resolved, that I'm not being unreasonable. The hard part is getting this changed without it seeming like I'm being the ****, whereas A, being an accountant should never have allowed this to happen in the first place.

Wish me luck!

Raymond Lin · 23 Jan 2022 at 18:22

SpeedFreak said:
That's the easy part resolved, that I'm not being unreasonable. The hard part is getting this changed without it seeming like I'm being the ****, whereas A, being an accountant should never have allowed this to happen in the first place.

Wish me luck!

He is being a greedy businessman and not a fair accountant.

Jokester · 23 Jan 2022 at 18:27

Raymond Lin said:
He is being a greedy businessman and not a fair accountant.

Yeah, I think he's been unethical there.

wonko · 23 Jan 2022 at 18:28

You're not being unreasonable at all as I see it.
Another thought is that just because A is a higher rate tax payer doesn't mean that they are paying 40% tax on it. If A was putting this extra income into a pension, then they would get tax relief at their marginal rate.

Angilion · 23 Jan 2022 at 18:29

SpeedFreak said:
[..]Any thoughts? [..]

Personal tax liabilities are personal. Equal (assuming it's an equal partnership) sharing of profits from the business, each person handles their own personal tax liabilities.

SpeedFreak · 23 Jan 2022 at 18:32

wonko said:
You're not being unreasonable at all as I see it.
Another thought is that just because A is a higher rate tax payer doesn't mean that they are paying 40% tax on it. If A was putting this extra income into a pension, then they would get tax relief at their marginal rate.

Also a good point, I do similar to protect my personal allowance.

Steeps · 23 Jan 2022 at 18:54

If A was suddenly made redundant and no longer paying tax would it be fair on A for B and C to increase their share for their (B, C) tax burden they now have over A, or would A be arguing they needed the same to support their family and their (A) situation is not their (A) fault? Same with B, I'm sure they'd be thrilled if they got paid less if they lost their job because they were no longer paying tax on their income but the interest on the student loan was still growing.

weringo · 23 Jan 2022 at 19:01

Is A registered as an accountant with a professional body?

Unless there is a partnership agreement permitting what is going on (which you said there isn't), A has been using partnership assets to settle personal liabilities so has either been defrauding his fellow partners or is simply not fit to be an accountant because he doesn't understand the basics of how a partnership operates. Any challenge you get from A you should threaten to report him; registered accountants receive disciplicaries for far less. You should probably report him anyway but may be awkward given the sibling relationship

Foghorn Leghorn · 23 Jan 2022 at 19:24

SpeedFreak said:
That's the easy part resolved, that I'm not being unreasonable. The hard part is getting this changed without it seeming like I'm being the ****, whereas A, being an accountant should never have allowed this to happen in the first place.

Wish me luck!

Allowed it to happen?! He's been ******* them over for 5 years and he knows it.
Do the frc have an advice line? If he won't budge then maybe suggest the services of an independent accountancy firm or a chat with the frc if that's possible and see what he does.