Sole Trade to Partnership Changes

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Where a business is set up as a partnership the IRIS tax products decide whether a set of partnership pages or self employment pages should be printed based on the number of people involved with the partnership during the period.

Where the program treats a partnership business as a sole trade it displays a message to that effect when the period is selected.

This guide will help you through various different situations where a change of business type is required, either by admitting a partner to a Sole Trade or by a partner leaving a Partnership resulting in a Sole Trader.

Below are various scenarios where a partnership changes to a sole trader and vice versa. Each case includes:

Click here for further help that explains how to change a sole trade to a partnership and vice versa.

Making the Changes to a Client in Accounts Production

The initial changes required to change the client from one business type to the other will usually be carried out in Accounts Production when the accounts are prepared.

Sole trader to Partnership

When changing a Sole trader into a Partnership carry out the following steps:

- Change the business type from sole trader to partnership by going to Client | View and changing the Business Type on the Basic tab. Click "Yes" when asked to confirm that the change is required.
- Add the new partner(s) to the client via Edit | Partners.
- Set up the partnership profit shares by selecting Edit | Partners Profit Shares. Remember that at least two different sharing ratios will need to be set up:
- 1. for the original trader who will receive 100% of the profit for the period before the partner(s) joined
  2. from the date the new partner joined splitting the profit between all the partners.

Partnership to Sole trader:

When changing a Partnership to Sole trader carry out the following steps:

- enter an end date must be entered for each resigning/deceased partner via Edit | Partners, highlight the ceasing partner and click on View, then enter the relevant end date, and click Update.
- as soon as there is only 1 active partner, the system will assume that it is a Sole trader. It will then display the Partner share of net profit screen, where the profit share should be set as 100% being received by the remaining partner.
- If any of the ceasing partners have a capital account balance, this should be cleared to £0 in the year they have ceased, as they are no longer a partner. Usually the balance would be transferred to an other debtor, or other creditor account, but this is up to the individual.
- NOTE: do not change the business type to sole trader. Changing the business type to sole trader will mean that partnership returns for earlier periods can not be easily regenerated. As the IRISPTP software can detect that there is only one remaining involvement it will automatically treat the business as a trader once the other partners have left.

End of further information section

Partnership to Sole Trader Changes

Partnership Changes to a Sole Trade During Accounting Period and Tax Year

Example:

Partnership to Sole Trader During the Accounting Period and Tax Year

Mr Alpha is in partnership with Mr Beta until 31/03/ when Mr Beta leaves the partnership. The business account period end date is 31 March.

Business Tax:

- Prints a partnership return with 31/03/ automatically entered in box 3.8 for the period to 31/03/.
- Treats the business as a sole trade for any future periods.

Personal Tax:

- Prints partnership pages for all partners for the tax year.
- Prints self employment pages for future periods.

End of Example

Partnership Changes to a Sole Trade After the Accounting Period Ends but Within the Tax Year

Partnership pages will not be generated in the following tax year as they have already been returned in the preceding period.

Example:

Partnership to Sole Trader After the Accounting Period Ends but Within the Tax Year

Mr Alpha and Mr Beta are in partnership with an account period end date of 31 December.

Mr Beta leaves the partnership on 31 January .

Business Tax:

Generates two sets of partnership return pages:

- One for the accounting period which ends during the tax year, 31 December
- One for the accounting period which ends during the next tax year, 31 December

Both sets of pages will contain:

- figures on the trading and professional income pages
- A date of cessation in box 3.8
- A date of cessation against the departing partner.

Partnership pages should not be generated in the following tax year as they have already been returned in the preceding period.

Personal Tax:

- Generates partnership pages for all partners for the tax year and the tax year.
- For periods after that Personal Tax will generate self employment pages for Mr Alpha.

End of Example

Sole Trader to Partnership

Sole Trader Changes to a Partnership During the Accounting Period and Tax Year

Example:

Sole Trader to Partnership During the Accounting Period and Tax Year

Mr Alpha is a trader until 1 June , when Mr Beta joins as a partner. The account period end runs to 31 March.

Business Tax:

- Generates a partnership return for the 31 March period end with a date of commencement of 1 June automatically entered in 3.7.

Personal Tax:

- Generates partnership pages from the tax year onward.

End of Example

Sole Trader Changes to a Partnership After the Accounting Period but Within the Tax Year

Whether a partnership return is required depends on the type of income received by the business,

Example:

Sole Trader to Partnership After the Accounting Period but Within the Tax Year

Mr Alpha is a trader until 1 February when Mr Beta joins him in partnership. The account period end date is 31 December.

Business Tax:

- Treats the business as a sole trade if the account period selected in the toolbar is the 31 December .
- Treats the business as a partnership and generates a set of partnership pages with a date of commencement automatically entered in 3.7 if the account period selected in the toolbar 31 December .
- If the business received any income that is returned for the tax year (e.g. taxed interest) this must be entered in the Partnership Data Entry.

Personal Tax:

- Prints self employment pages for Mr Alpha for the tax year
- Prints partnership pages for the new partner for the tax year
- Prints partnership pages for all partners thereafter.

End of Example

Changes Where there are Two or More Accounting Periods in the Basis Period

Prints a partnership return for any accounting period where more than one person was involved in the trade.

Treats the business as a sole trader for any period where the business was exclusively carried out by one person.

If one of the accounting periods is purely as a sole trader, two sets of pages will be printed:

Example:

Changes Where There are Two or More Accounting Periods in the Basis Period

Mr Alpha is a sole trader for the year ending 30 April . Mr Beta joins him in partnership on 1 May and their next accounting period end date is 31 March .

Business Tax:

Treats the business as a sole trader for the 30 April period where the business was exclusively carried out by one person.

Prints a partnership return for 31 March where more than one person was involved in the trade.

Personal Tax:

As one of the accounting periods is purely as a sole trader, two sets of pages will be printed:

- Sole trade pages showing the accounting information for 30 April but with page 3 blank and box 3.10 ticked.
- Partnership pages showing the profit/loss from the partnership account periods with an adjustment showing the profit/loss from the sole trade period.

End of Example