PARTNERSHIPS

A partnership is a group of individuals who are trading together. They will agree amongst themselves how the business should be run and how profits and losses should be shared. or ta! purposes" a partnership does not e!ist. Every partner will be treated as a sole trader and the following will be used# $. A partner will be treated as beginning to trade when he %oins the partnership and opening year rules will apply to him&her. '. A partner will be treated as (easing to trade when he&she leaves the partnership and therefore (essation rules will apply to him&her. ). Partners are assumed to be having the same a((ounting period as the partnership e!(ept where they %oin or leave the partnership during the period of a((ount. *. The partnership+s a((ounting profit is ad%usted for ta! and then shared amongst the partners a((ording to the agreed profit sharing ratios. ,. Any salaries paid to partners are not allowed for ta! purposes. -. .hen (omputing (apital allowan(es only the business use of the assets should be (onsidered. /. .here the partnership has in(urred trading losses" the partners are entitled to similar trade loss reliefs as sole traders. E.g. where a partner %oins a partnership and in that year the partnership has in(urred losses" the %oining partner may relive opening year trade losses against general in(ome of the pre(eding ) ta! years. A partner leaving the partnership when the partnership has in(urred trading loss may use terminal trade loss relief. 0. Ea(h partner will relieve losses depending on his ta! position" his (ashflow et(. i.e. he&she will use a relief that best suits him&her.

E!ample $ 1omini( and 2ustin (ommen(ed partnership on $./.'33, ma4ing a((ounts to every )3.-. 5n $.$.'33/ Simon %oined the partnership. The partnership a((ounts showed the following ta! ad%usted trading profits# 6 7ear ended )3.-.37ear ended )3.-.3/ 7ear ended )3.-.30 $3"333 $)",33 $0"333

8al(ulate amounts ta!able on ea(h partner for the year 3,&3- to 3/&30. Assumptions A partner will only share profits when he was in the partnership. Profits a((rue evenly over the a((ounting period Profits and losses are shared e9ually.

E!ample ' :imited :iability Partnership ;nder this partnership" liability of the partners to )rd parties is limited. However they are ta!ed in a similar way to the normal partnership i.e. ea(h partner is ta!ed on his&her proportion of partnership profits. Partners may relieve losses in the same as sole traders where appli(able e!(ept that under loss relief against general in(ome the amount of loss that (an be relieved against the general in(ome is restri(ted to amount of (apital (ontributed. E!ample < and 7 have in partnership for several years. 1uring the year 3/&30 the partnership in(urred a loss of )3"333. :osses are shared e9ually. The partners have other in(omes as follows# Employment in(ome Property business profit =an4 interest >gross? $"333 '3"333 < 7 -"333 $3"333 '3"333

Show how the loss may be relieved using general in(ome. 8apital was (ontributed as follows < @ 6$3"333A 7 B 6'3"333