Partnerships

Question 1

Allocation of partnership profits

Answer 1

Perform adjustments to profit
Calculate and deduct capital allowances
Split the profit between the partners in accordance with their partnership agreement
Treat each partner as a separate sole trader and apply the rules to allocate their taxable trading profits to the appropriate tax year

Question 2

Change in profit sharing ratio during accounting period

Answer 2

After performing adjustments to profit and calculating and deducting capital allowances, divide the accounting period into the periods of the different profit sharing agreements

Question 3

Notional losses

Answer 3

Partnership makes a profit but none of the partners makes a notional loss
Calculate profit / loss of each partner as normal
Set the loss making partner’s overall profit / loss to zero
Reallocate the notional loss to the other partners in proportion to their current profit allocation

Question 4

Notional profits

Answer 4

Partnership makes a loss but none of the partners makes a notional profit
Calculate profit / loss of each partner as normal
Set the profit making partner’s overall profit / loss to zero
Reallocate the notional profit to the other partners in proportion to their current loss allocation

Question 5

Loss relief for partners

Answer 5

Partners entitled to the same loss reliefs as a sole trader
Each partner makes their own loss relief claim based on their own circumstances

Question 6

Capital gains

Answer 6

Partnership capital transactions are treated as dealings by the individual partners rather than the partnership
Each partner treated as owning a fractional share of each of the partnership assets
Each partner chargeable on their share of gains arising on disposals of partnership assets - chargeable gain apportioned between the partners in accordance with the partnership capital profit sharing ratio

Question 7

Limited liability partnerships

Answer 7

The liability of the partners is limited to the amount of capital that they contribute to the partnership
Partners taxed on similar basis to those in a normal partnership - each liable to tax on their share of the taxable trading income of the LLP

Question 8

Salaried members of LLP

Answer 8

Partners who receive fixed payments in return for their services, not varying with the profits of the LLP
Treated for income tax, national insurance and corporation tax purposes as if employees and not partners

Question 9

Restriction of loss relief in an LLP

Answer 9

Limit on amount of relief a partner in an LLP can get when setting trading losses against non-trading income - ‘sideways relief’
Total lifetime ‘sideways’ loss relief an LLP partner can claim is restricted to the amount of capital invested by that partner
Any remaining losses continue to carry forward against future profits from the same trade
No restriction on loss relief against profits of the same trade