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Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 13658
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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I have a problem. I formed a partnership with 1 other person

Customer Question

Hi. I have a problem. I formed a partnership with 1 other person in 2012. I filed Self assessment tax returns with partnership pages recognising the income (and losses) from the partnership for 2012/13. Now I learn that the partner did not file a partnership return for that year, and is claiming that he left the partnership shortly after it was formed, and continued trading as a sole trader. The ex partner has convinced HMRC that we don't need to file anything more than a 'zero tax return' for that period, and that once we do that we can appeal against the fine for non-filing of the partnership tax return. But that still leaves my 2012/13 self assessment form with a partnership page with significant losses from what I thought was our active partnership. Can you help me please? I'm at my wit's end!
Thanks
Submitted: 10 months ago.
Category: Tax
Expert:  Sam replied 10 months ago.
Hi Thanks for your question - I am Sam and I am one of the UK tax experts here at just answer. From where did you get the figures of the partnership position for 2012/2013? Which one of you was deeemd to be the lead partner? And what impact is this having on you?Are HMRC pursuing for the partnership return on you? Did you both trade from the partnership bank account during 2012/2013 and how long did you beleive that the partnership continued for and does trade back this up? Thanks Sam
Customer: replied 10 months ago.
Hi Sam
I ghot the figures from my partner. He was the lead partner re: tax, and was doing all the negotiations up until now. However, I registered the partnership with HMRC initially. However, it seems that in not filing an initial partnership return he did not register himself with hmrc as a partner, so they don't seem to have a record of him as a partner, and now I am trying to file a return for 12/13 and he is refusing to give me his UTR etc.So, there's a fine against MY tax account which HMRC are now threatening to pass to debt collectors, and I'm really worried..We did form a ltd company so that we could get an overdraft with the bank, and my ex partner is claiming that all the trading went through that rather than through the partnership.Nik (ex partner) says that he was advised by HMRC to file a 'zero return' for 12/13. I don't know what do to and now I'm really in a tight spot.
Customer: replied 10 months ago.
(Posted by JustAnswer at customer's request) Hello. I would like to request the following Expert Service(s) from you: Live Phone Call. Let me know if you need more information, or send me the service offer(s) so we can proceed.
Expert:  Sam replied 10 months ago.
Hi Thanks for your response May I ask why you had a partnership and a limited company for the sale business? As I assume there was only one set of trade income ? If you would like a live telephone call I can oblige but this will cost an additional amount - would you like em to send an activation request for you with my details? Thanks Sam
Customer: replied 10 months ago.
So, yes, HMRC want a partnership return from me. But ex partner won't provide his tax details. I think we may have traded mostly from the other bank account though, not the partnership one.
Expert:  Sam replied 10 months ago.
Hi
Did you want to turn this into a telephone call _ I can then send a request but this will incur an additional cost?
Or would you like to continue as this thread of Q & A (Im in the Uk in Kent so you are not caught having to make a costly overseas call and of course these costs are all an allowable tax deduction for expenses!)
Let me know how you wish to proceed
Thanks
Sam
Customer: replied 10 months ago.
if its poss to continue online lets do that..
Customer: replied 10 months ago.
We never made any profit. After the first year, we stopped trading (31 July 2013) and I have a profit/loss account that my partner prepared which covers the time from the initial formation of the partnership (2 May 2012) to that point. I have a copy fo the partnership formation document, but I don't have the bank statements to hand, so I can't be sure re: how much we traded through the partnership account, but I am pretty sure most of it went through the ordinary bank account linked to the partnership (as the other one was solely related to the overdraft).
Expert:  Sam replied 10 months ago.
Hi
Of course
So can you advise why you had a partnership and a limited company for the same trade position - that is very unusual.
And if you traded from the limited company bank account then you would both have been employees from the business and would have either taken a salary or a mix of salary and dividends and then had a P60 to details your income and tax suffered and any documentation detailing any dividend payment awarded.
Did you take any drawings out of the business and was tax and National Insurance deducted appropriately?
Then you would have completed a self assessment with the employment page -
So as I see it - you should be able to just advise HMRC that its right the partnership was not the trading business (this would be the limited company) and it would appear it was set up incorrectly - so they will quash the need for the partnership return - you are then just left having to refile your self assessment correctly - which will incur a fine for amending and if any tax is due will attract interest.
However I have a feeling you are going to advise its not as clear cut as that maybe?
Thanks
Sam
Customer: replied 10 months ago.
Ah OK. I did take a total of £1500 during that time, as I was in need of some sort of income but that was it. I do not think I paid any tax or NI on this income. I was not aware that we were employees though. We don't have any P60 etc. though.I registered a loss of £22131 for the partnership (which I thought I was in!) for 12/13 on my tax return.Do you have any idea what the fine might be for the self assessment errors? I can send you my tax return from that time if that would help?
Expert:  Sam replied 10 months ago.
Hi
Directors of their own limited companies are always employees - as their salaries can then be taken into account as business expenses whereas with the partnerships all net income (or losses) remaining are split and its this figure tax is considered on.
But I need to know why you had a limited company and a partnership for the same business and trade income - this is strange to say the least - as you cannot have the costs from one against the other - they are each treated for tax purposes as separate legal entities
I think your first port of call is to get full bank statements for the period for both the partnership (as you believed it to be) and the limited company and the banks will facilitate this - and of course then your own personal bank statements - from which you can create what income arose where and try and separate this tangled mess and how to take forward.
The limited company paperwork when you registered with companies house and HMRC would have both your National Insurance numbers and UTRs (possibly)
If it proves there was income that is to be treated as not limited company - then you can at least then either recreate the partnership with 2 x the losses based on the fact you know the information to be accurate and let HMRC chase up your "partner"
At the very least you will have late penalties for the returns but without knowing what you should have completed and what the overall income positions are = it would be impossible for me to guess. Plus at this time HMRC may even bestow penalties and interest is tax is owed. (plus interest)
The limited company also clearly did not declare the fact you have drawn income out of it which would form a directors loan account - this really is a bit of a pickle!
Thanks
Sam
Customer: replied 10 months ago.
I know - I'm really stressed about it all. I though the ltd company was simply formed so that the bank would provide an overdraft account to us. I will get all the bak statements from both accounts and my personal ones and take it from there. Would you advise that I get a proper tax consultant to help untangle this? Also, HMRC have demanded I pay this fine for the outstanding tax return which is £1200 and threatened a debt collection agency. should I pay this now and see how the it goes from there?
Expert:  Sam replied 10 months ago.
Hi Thanks for your question But this in itself is not appropriate to have two legal entities overseeing just the one trade isnt not going to be looked too kindly by HMRC (and this is probably why Nik is now denying all knowledge) I would at this time - contact HMRC and explain there has been one huge mess that you are engaging an accountant to assist you with - explain that you need to gather all the bank statements etc - ask them to give you say 4 weeks to get something in order and if you cannot then meet that deadline then ring and update them. If you dont have it ask them to end you a copy of the self assessment returns your submitted with the partnership page for 2012/2013 and the 2013/2014Also ask them (you may them be best phoning the Corporation Tax helpline_ and asking for the appropriate tax returns filed for Corporation tax - and also contacting Companies HOuse to see what was filed there.Do not worry about NIK or his details etc, just focus on you unraveling this so you can take this forward and find a resolution. Then find a local accountant that can manage limited companies , partnerships and perhaps creating 2 sets of accounts to compare what went on where ! And it may be that then this is presented to HMRC to ask then HOW they would like this mess to be proceeded with. Then that takes the mess of you and the decision of how to manage this in HMRCs hands !Then worry about what fines arise then - HMRC will offer a payment plan on what you can afford and there will be the ability to mitigate some of the penalties anyway.Let me know if I can assist further but achieve two things today1) Phone HMRC to obtaon all you need2) Find an accountant who may not be able to see you until after 31st Jan (as self assessment deadline day!) and if you can3) pay all/some of the penalties as this can always be refunded back if proved not to be due If you need any further support then please do come back to Just Answer and if you need me - just ask me in your post - and other experts will be happy to let you wait until I am online (I am on everyday) if you let them know this In the meantime it would be much appreciated if you could rate the level of service I have provided today- but try not to worry it can all be sorted Thanks Sam
Customer: replied 10 months ago.
Thank so much for your advice Sam. I really can't wait to get this sorted out so I can move on from this mess. I have paid the outstanding fine to HMRC just now, so at least that's one thing dealt with. I will find a tax accountant who can help me locally. I already have my self assessment returns for 12/13 and 13/14, so that's one thing done. I will also get in touch to see if any corporation tax returns have been filed. I suspect not, sadly. I will phone HMRC now and explain the mess, and that I am engaging an accountant to sort it out. Thank you so much this has really helped me identify the problems (worse than I thought) and a way through. Do you think it will be alright?
Expert:  Sam replied 10 months ago.
Hi I can only imagine what a strain this has been for you but there is light at the end of this tunnel! Thats good - then they will not chase for money at this time which buys you the time - and then make sure you mention this to HMRC that you paid it as a gesture of good will whilst you managed to find an accountant to support you unravel this unfortunate mess. And of course it will be alright - you have got in a pickle (an unusal one) but still just a pickle rather than a horrendous landslide avalanche earthquake - end of life as we know it - criminal positionI know you are worried but in my time in and out of HMRC I see worse every day with hundreds of thousands of pounds of tax owing - this is big to you and its all relative - but to HMRC - they just want you to help them meet your obligations (as they see them to be) Thanks Sam
Expert:  Sam replied 10 months ago.
Hi
It would be appreciated if you could rate me for the level of service I have provided then Just Answer can credit me for my time - and of course of you have any furtehr questions then do please ask
Thanks
Sam

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