8/13/2019 Lecture 9 Part 3 Partnerships
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PARTNERSHIPSPARTNERSHIPSPARTNERSHIPSPARTNERSHIPS
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 partnershipand opening year rules will apply to
him&her.
'. A partner will be treated as (easing to trade when he&she
leaves thepartnership and therefore (essation rules will apply to
him&her.
). Partners are assumed to be having the same a((ounting period
as thepartnership 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 sharedamongst 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 entitledto 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 (ashflowet(. i.e. he&she will use a relief that
best suits him&her.
8/13/2019 Lecture 9 Part 3 Partnerships
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E!ampleE!ampleE!ampleE!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.-.3- $3"333
7ear ended )3.-.3/ $)",33
7ear ended )3.-.30 $0"333
8al(ulate amounts ta!able on ea(h partner for the year 3,&3-
to 3/&30.8al(ulate amounts ta!able on ea(h partner for the year
3,&3- to 3/&30.8al(ulate amounts ta!able on ea(h partner
for the year 3,&3- to 3/&30.8al(ulate amounts ta!able on
ea(h partner for the year 3,&3- to 3/&30.
AssumptionsAssumptionsAssumptionsAssumptions
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 'E!ample 'E!ample 'E!ample '
:imited :iability Partnership:imited :iability
Partnership:imited :iability Partnership:imited :iability
Partnership
;nder this partnership" liability of the partners to )rdparties
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!ampleE!ampleE!ampleE!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#
