Partnerships

Question 1

how are partners in a partnership taxed?

Answer 1

each partner is liable to income tax on their share of the partnership’s taxable trading profits

Question 2

is current year basis or actual basis applied to continuing partnerships?

Answer 2

current year basis

Question 3

do opening/closing rules apply to partners joining/leaving the partnership?

Answer 3

yes, but current year basis to continuing partners

Question 4

are unlimited/limited liability partnerships taxed differently?

Answer 4

no, they’re taxed the same

Question 5

what are partners taxed on?

Answer 5

their individual share of the profits

same as a sole trader

Question 6

taxable trading profits of a partnership are allocated to each partner based on what?

Answer 6

the profit sharing agreement for that period of account

Question 7

which 2 elements should be allocated before allocating profit-sharing ratio?

Answer 7

capital introduced into the partnership and salaries

Question 8

PSR = ?

Answer 8

profit-sharing ratio

Question 9

erin & cassandra made 55,000 profit

erin salary = £10,000
cassandra salary = £15,000

PSR = 2:1, erin:cassandra

Answer 9

allocate salaries first (erin gets 10k, cassandra gets 15k)

55k - 10k & 5k salaries = 30k leftover

2:1, 20k:10k

Question 10

how is interest on capital introduced handled?

Answer 10

it’s allocated alongside the salaries before allocating the profit-sharing ratio