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spord

Partnership Tax Question

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Hi all.

I've been trying to sort out the 2010-2011 tax affairs for a new partnership (begun mid-2010) and I'm having some trouble working out a few things. The best way to approach this would be to get an accountant (and we might yet do this) but our business is pretty simple at the moment, not making any money yet, and I'm stubborn and sure I should be able to work this out for myself. What I really need is some worked examples, as the HMRC information seems, to me, to be pretty cloudy.

I'll give some round figures of the right order of magnitude at least in case some kind soul here is able to help :)

So, we are a partnership (two partners) providing media services. We are both in full time employment and lets say for the sake of simplicity that we each earn £40k a year from that employment.

The partnership turnover for 2010-2011 was around £3000. (We're quite lazy and just starting up really. This is trade income only, i.e. no fancy investments or anything).

The partnership expenses for 2010-2011 was around £9000 (equipment and software purchases and various relevant expenses).

This leaves us with a loss of £6000 for the tax year 2010-2011. This is shared equally between us. Now then: do we simply claim that £3000 loss each on our respective self assessment forms, and does that then translate to a tax refund for the year because we have paid more tax than our (loss adjusted) income dictates? i.e. each of us actually earned £37k in total, but have paid tax on £40k?

I've been getting myself all confused with whether or not we need to be carrying loss forward - i.e. whether we can claim tax relief on the WHOLE of the 2010-2011 loss; or we can only claim a part of it this year and have to save some for next year.

Any help is most welcome (or if anyone can point me at a suitable tax calculator for partnerships?).

Thanks!

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If it's a new venture you should be able to offset the losses against your PAYE, and you can carry these back to prior years. Sounds like you're on the threshold of higher rate tax so you should look into whether you can restrict the amount offset against PAYE / carried back so you are only relieving higher rate income. Given the numbers involved worth researching / getting proper advice from a local accountant that knows small business tax well. Do your research before speaking to them so you can make a judgement if they are any good.

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This leaves us with a loss of £6000 for the tax year 2010-2011. This is shared equally between us. Now then: do we simply claim that £3000 loss each on our respective self assessment forms, and does that then translate to a tax refund for the year because we have paid more tax than our (loss adjusted) income dictates? i.e. each of us actually earned £37k in total, but have paid tax on £40k?

I've been getting myself all confused with whether or not we need to be carrying loss forward - i.e. whether we can claim tax relief on the WHOLE of the 2010-2011 loss; or we can only claim a part of it this year and have to save some for next year.

From a procedural point of view you will need to submit a partnership tax return that will disclose the loss for the year and splits the loss between the partners. Each partner will then need to disclose the loss on their income tax return and can either:

  1. Offset the loss against this year's total income and receive a refund this year.

  2. Carry the loss forward to offset against the profits of the same trade in future years, to reduce the tax liability in future periods.

Option 2 is worth considering if you are a basic rate taxpayer and expect your income to be higher next year so that the saving can be made at 40% rather than 20%.

Also bear in mind that you need to look at your National Insurance Contributions situation as well.

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  • 284 Brexit, House prices and Summer 2020

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