Trying to get my head around two sets of accounts I need to do. One limited company, husband and wife director and one LLP same husband and wife and also the limited company as partner.
both genuinely separate businesses but set up like that by previous accountant for 'tax purposes' but as he has done a runner I'm trying to help out.
basic understanding is the LLP profit is split between the three parties at a percentage determined by them. Husband and wife declare their share of LLP profit on own tax returns plus the standard director income via PAYE and dividends from the LTD. All easy so far.
Question is how to account for the share of profit in the LTD co accounts? Initial thought was DR Debtor (LLP) CR Income. The LLP does not have enough cash to pay the LTD as the profit has been taken by the partners in drawings already and not 'paid' to the LLP.
The tax comp in the CT600 will need some jiggling to add back dis-allowed expenses within the LLP income but I'm happy with that part. I just can't get the double entry right.
BTW, double entry in the LLP is to DR the P&L with the full profit allocation and CR balance sheet members capital (which is then reduced by the drawings) so similar to standard partnership.
In my mind, the share of profit would appear in the limited company accounts as "income from associates" and be debited to the balance sheet as "amounts owing from associates". The income would appear below operating profit, and there would be a related parties note.
Here's an article I found that you may find interesting:
Income below operating profit makes perfect sense too though I've had a fiddle with VT (accounts) and in the tax comp it treats it as franked investment income so not taxable.....which it's not. Doesn't matter though as I'm using Taxcalc for the SA800 and the CT600 and that allows me to control the figure.
I've put it in the BS as a debtor 'amounts owing from related parties' is a standard note in VT.......
I just need to figure out the related party disclosures next.
I am surprised its not taxable? If it were a dividend from another company, its not taxable as its already suffered corporation tax before being appropriated.. but as profit,which hasn't been already taxed, I would have thought it would be taxable? Will you explain that for me so I understand the process, please? I'd be really interested to understand. Does that income not get taxed anywhere?
Hi Michelle, it's my English/grammar that's wrong not the tax comp.........!
VT is treating as already taxed income, which I was trying to say above, is not right - as it is entirely taxable.....as you rightly point out.
The main reason is to shift income from being personally taxed which would suffer NI from the partnership via the company which as you know will only pay CT at 20% on it.
Of course now that I put income and shifting in the same sentence that opens up a whole new can of worms......wish he just had two limited companies, so much simpler!
Had I found a scheme to avoid paying tax on the companies share I could be a very rich man...........in jail!!!!!
Once again thanks for your help, and offer of clarification - much friendlier than AWeb over here!
