Hello, my dp has his own little business. He works approx 24 hours a week. Over the last year I've also been working with him but not been paid (all money goes to the household pot anyhow) This year I want to be "official" so I am going to register as self employed and turn dps business into a partnership.
The way I understand it is as follows and I would like someone to point out if I've got something wrong.
So I've set up a joint bank account (just a normal one as we're not a big business)
All money collected will go into this account. We each draw a "wage" and any leftover mounts up? For example say we take £300 a week, we each take £100 wages and leave £100 in. How do we prove this to the housing benefit people? Do we write ourselves a wageslip? And at the minute all earnings are declared on dps tax return. When we come to do a tax return, do we just declare our wages? What about the money in the bank?
We have an invoice book, which is just one of those with carbon copy paper in. It has the business name stamped on the top - will this need to change so that our names are on it too? Is it easier to print invoice templates out then fill them in as we go? (We give customers an invoice as soon as we're done) but then we won't have a copy of what we've charged.
As I've been helping dp this last year, the income for next year will be the same, so will tax credits/hmrc think it dodgy that 2 people are now working but we're taking a similar amount?
We cannot afford an accountant so any advice is welcome (I've probably got more questions too but going to put the dc to bed)
You don't have a limited company here so as 50/50 partners you are each entitled to half the profits. The fact you have not drawn the money out might (I am not sure) still mean you are entitled to it as you haven't spent it on anything; whereas if you formed a limited company tht is a separate person in law and you can keep money in that different entity and not be taxed on that money (although the company itself would be).
You are not PAYE employees of a limited company so do not get "wages". You draw your profit share. The money in the bank belongs to both of you so eg in my view would count to decide if you are entitled to benefits in seeing if your savings are over the benefits limits.
The other point is that so many people do not put their partnership in writing. At the least jot down your terms and both sign it, at bet buy a "partnership agreement" which you sign. YOu might get on well nowbut you may not later. If you have nothing in writing then the partnership act of 1890 applies but you are better off writing down your agreement with each other,
Unless you set up a company all the money you take in minus your expenses counts as your income for tax and other purposes.
If you want to leave money in "the business" and draw "a wage" you need to set up a limited company.
A limited company also protects your personal assets from any business debt.
I'm a sole trader but I think with a partnership I'd probably go down the limited company route for protection.
There is no initial investment really. It was all equipment we had already. So at the end of the week we can half whatever is in the bank (though really it all just goes into the household pot, everything is shared)
What if, say, we needed to buy a new lawnmower? That was the reason I was thinking of keeping an amount in the bank. Would we just have to fund it ourselves then claim it as an expense?
Thanks for replying btw
Yes to the lawnmower question.
But the more I think about it the more I'm not sure how two people can be a "sole trader" together. you need to do some research.
Start here www.bytestart.co.uk/set-up-partnership.html
I have advised loads of partnerships.
People can be sole traders ( one person and presumably what the poster's partner currently is) or if there is someone else a partnership or if they set one up a limited company (or an LLP but ignore those for now). So the first issue is that a sole trader is forming a partnership so moving assets from his name into joint names not that there probably are many assets except reputation and goodwill.
Then if a partnership spends money (and there are plenty of partnerships out there even with 20 partners + by the way) that is a business expense. Each partner pays their own tax on their own self assessment tax return and that is on the profit after expenses. So if a new business things is bought eg flour to make cupcakes that is deducted in working out what you have left. Bty the way I think if you buy capital bit items like lawn mowers, computers, cars they are not all deducted from profits at once - look up capital allowances - only part of the cost is allowed against tax in each year if you are say a gardener, whereas if the business were buying and selling lawn mowers than all the cost would be.
You pay tax (and NIC) on your share of the partnership profits, i.e. business income less eligible business related costs. What you actually draw out is irrelevant.
For each year, you prepare accounts, which show the taxable profit of the business. You put those figures on the partnership tax return and split the taxable profit between you.
You then put that same figure on your respective personal tax returns - no other business figures go on your personal tax returns, just your partnership profit share.
Taxable profit as per the partnership tax return will also be used for benefits and NIC purposes. What you actually draw out (i.e. what you call your wages are completely ignored).
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