A client of mine has recently changed status from being in a partnership to a sole trader. The problem i am having is before the partnership was dissolved the partners weren't taking 50/50. Most of the work was carried out by my client and the second partner was only given a small %age of the work.
I am at the moment starting the last partnership Return (ceased middle of financial year) but i don't have much to go on for the other partner as they went thier seperate ways. I am uncertain as how to enter figures when they aren't split evenly and i also have no CIS information for the second partner either.
Can i just go on the invoices i have for work carried out and try to work out a round-about percentage for each partner? I'm not sure the software will automattically enter figures based on a %age entered..this may not be the figure i arrive at.
Regardless as to what the partners were taking out was there a partnership agreement in place?
If not then the partnership act (1890) takes precedence as to any divisions or distributions.
For something like this it is best to take the advice of the entities accountant rather than attempt to apply logic to the situation based on past practice in the partnership.
Sorry I can't be more help on this one.
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
There are potentially other factors to consider, such as did the other partner take any share of the business. Is there a capital payout to be done or was done? You can almost use any percentage share during the time.
I would do the capital accounts and profit share allocations on Excel and manually override the percentage element (this depends on software used anyway).
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Phil Hendy, The Accountancy Mentor
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Hi, thank you both for your quick responses. Basically my client has kept tools, equipment and name of business. For the last 'part' year of the partnership the second partner carried out some of the work and was paid accordingly, all other work was carried out by my client and he kept all monies due. It sounds unusual for a partnership i agree but the second partner had made a large cock-up and had agreed not to be a 50/50 partner for the final year as so to recoup money he owed..it's a long story. So i am having to allocate most of the profits, Drawing and Expenses to my client as the second partner didn't play much of a role in the final year. He also became a Sole Trader.
The second partner left the partnership with nothing owed to him.
I hope this helps..i'm sorry it's a little confusing!
I think based on the information you merely allocate the salary paid for work as that partners share of profit.
You would then have to look at the capital account brought forward and probably adjust that too. Assuming it is a positive capital balance this would create a loss for the one partner and taxable profit for the other! Happy to see someone else's view on this one as I have only really dealt with partnerships that have been paid out!
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Phil Hendy, The Accountancy Mentor
Are you thinking of setting up your own practice or have you set up and need some help?
If so a mentor may be the way forward - feel free to get in touch and see how I can assist you.
