Final Partnership tax return

[lorryman]

I would be really grateful for some help with my final partnership tax return. I usually complete my own tax returns, without the help of an advisor, which in the past has been fairly straight forward. I had been in a husband and wife partnership for the past 15 years but sadly our marriage came to an end and the partnership ended on 31 August 2010. The final set of accounts is for a full 12 months as our year end has always been 31 August. Also from 1 September 2010 I continued to trade as a sole trader and have prepared accounts for the 7 months to 31 March 2011. I also transferred the capital allowances wdv c/f figures from the partnership to my sole trader business. So on my personal tax return for 2010/11 I have a tax bill for my full year’s split of the partnership profits along with 7 months profits to 31 March 2011, in effect I’m being taxed on 19 months of profits. Is this correct? I just wanted to check before I send the figures off to HMRC. Any advice is much appreciated.

[pjclar02]

Hello lorryman

You should be due overlap relief, which would give relief forseven months of partnership profits. When you first set up in partnership, you would have been taxed on seven months of your profit twice, and you can deduct this when the partnership ceases / transfers to a sole trade with a 31 March 2011 year end. The net result is 19 months profits - minus seven months overlap = 12 months profits taxable in 2010/11.

The overlap profits should hopefully be noted on your personal tax return, and if not I believe HMRC can notify you of the amount - its been a couple of years since I have had to call them to request this though.

Hope this helps.

Best wishes

Paul

[Tax Champion]

If there is no particular reason for your sole trader year end being 31 March, you could continue with 31 August as your year end, and the first twelve months as sole trader will then fall into the 2011/12 tax year, leaving only the normal 12 months to 31 August 2010 for 2010/11 -this can only be done if you are in fact continuing the same business, not if it has changed in any significant way. If your business has changed only in that your ex-wife is no longer a partner, and if your accounting date stays the same, your "basis period" for tax is also unchanged.

Overlap relief will still come into play if you change your year end at some future date, or when you eventually cease in business; however if you have been trading 15 years, and profits have increased since you first started, the value may not be very great.