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Where Taxpayers and Advisers Meet

Ending A Partnership - Informing HMRC

Angelchops
Posts:11
Joined:Sat Aug 17, 2019 5:12 pm
Ending A Partnership - Informing HMRC

Postby Angelchops » Thu Feb 11, 2021 2:13 pm

My wife and I have run a small 3 bedroom B&B in our home since 2013 and set it up as a partnership with HMRC. There's just the two of us and we use cash basis and the simple expenses system. I duly complete our SA800 (short) each year.

Covid has clearly been a disaster for our business and because of my wife 'shielding' coupled with the various lockdowns we haven't been able to trade at all. We've now had enough and decided to call it a day. We're therefore intending to formally cease trading at the end of this financial year unless of course some unforeseen miracle occurs.

My question, quite simply, is how will I inform HMRC? There seems to be a dedicated form for Sole Traders but I can't see a similar one for partnerships. I notice on another thread someone mentions there's a box on the SA800 to do this and as I will soon be filling in one of these for this current year it seemed to be the answer. However, I've looked through my copy of last year's return and for the life of me I can't see were this illusive box is - unless of course they just meant the additional information box on page 3? I'm a bit loathe to use free text boxes on HMRC forms, as the last time I used an additional info box on a tax return it was missed by HMRC and caused me no end of grief.

Can anyone advise me?

pawncob
Posts:4753
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Ending A Partnership - Informing HMRC

Postby pawncob » Thu Feb 11, 2021 4:10 pm

Just put the cessation date in box 3.2
With a pinch of salt take what I say, but don't exceed your RDA

pawncob
Posts:4753
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Ending A Partnership - Informing HMRC

Postby pawncob » Thu Feb 11, 2021 4:29 pm

Just put the cessation date in box 3.2
That should be Box 3.8, not 3.2
With a pinch of salt take what I say, but don't exceed your RDA

robbob
Posts:3150
Joined:Wed Aug 06, 2008 4:01 pm

Re: Ending A Partnership - Informing HMRC

Postby robbob » Thu Feb 11, 2021 4:58 pm

There are two specific issues here the easy bit of stopping the tax returns and the harder bit of updating your class2NI contributions - both need to be sorted independently of each other.

Ref class 2 NI
There seems to be a dedicated form for Sole Traders but I can't see a similar one for partnerships
Here is te form
https://www.tax.service.gov.uk/shortforms/form/CeaseTrading

Note ensure you use personal UTR not partnership UTR.

ref tax returns on personal tax returns you will enter date in box 4 of partnership short - i am presuming here that partnership ceased to exist on this date ?
ref partnership return as pawncob says enter cessation date on sa800 - on my 2020 version this is box 3.8 on page 2 (main trade information section) - box numbers may change from year to year though so it might not be 3.8 when you complete!

Angelchops
Posts:11
Joined:Sat Aug 17, 2019 5:12 pm

Re: Ending A Partnership - Informing HMRC

Postby Angelchops » Thu Feb 11, 2021 6:17 pm

Thank you both.

Yes I did wonder whether simply putting the last day of trading (in my case the last day of the FY) in box 3.8 would do it, but thought it was too simple! Anyway, that's fine thank you.

Regarding personal tax returns, I also note box 4. That's also straightforward - thanks.

However, is the 'stopping self employment form' necessary in our case? The reason I ask is that HMRC seem to regard membership of partnerships as a separate category to membership of a partnership. Something I've never fully got my head around I admit.

I suppose it's the only way to stop annual tax returns being requested so perhaps I'm answering my own question!

Angelchops
Posts:11
Joined:Sat Aug 17, 2019 5:12 pm

Re: Ending A Partnership - Informing HMRC

Postby Angelchops » Thu Feb 11, 2021 6:19 pm

Thank you both.

Yes I did wonder whether simply putting the last day of trading (in my case the last day of the FY) in box 3.8 would do it, but thought it was too simple! Anyway, that's fine thank you.

Regarding personal tax returns, I also note box 4. That's also straightforward - thanks.

However, is the 'stopping self employment form' necessary in our case? The reason I ask is that HMRC seem to regard membership of partnerships as a separate category to self employment. Something I've never fully got my head around I admit.

I suppose it's the only way to stop annual tax returns being requested so perhaps I'm answering my own question!

robbob
Posts:3150
Joined:Wed Aug 06, 2008 4:01 pm

Re: Ending A Partnership - Informing HMRC

Postby robbob » Thu Feb 11, 2021 6:50 pm

However, is the 'stopping self employment form' necessary in our case? The reason I ask is that HMRC seem to regard membership of partnerships as a separate category to self employment. Something I've never fully got my head around I admit.
Yes 100% necessarry unless you will continue trading as a sole trader which i am presuming is NOT the case here.

For class 2NI purposes partnership trade income is treated in exactly the same was as sole trader income - its a mechanical process of counting how many week in the tax year you were actively either a sole trader or a partner in business same bills under same name - the mechanics of starting and stopping is exactly the same other than when you startup its different forms being completed to perform the same function - for cessation though the same form suffices as it does the same job for both.
This form must be used to notify cessation as anything you hneter on teh tax returns will be ignored ref class2!

Note you are either "soletrader or partner" or neither - so if you went straight from being partner to sole trader the next day you wouldnt do the ceased trading notification ref class2 as you are still in business for class2 stamp purposes. I am presuming though that you have
I suppose it's the only way to stop annual tax returns being requested so perhaps I'm answering my own question!
Thats actually incorrect - the form notification i linked is purely to sort out the class2ni - thats completely indpendent of the stopping of the tax forms which are done by the boxes on the tax returns when you submit the cased trading returns and inicate trade has ceased.
Generally speaking hmrc will never (unless you get the ninja department to specificlaly sort it out when it has gone wrong) - update both class 2ni and tax returns from one submision the two systems simply dont talk to each other.

I must admit hmrc could do with doing a simple well explained web page to advise people as there any many people who have ceased trading who have live class2NI in the backgroud in errorr and similarly many who are trading who arent being billed class2 as the compuer says they never started or ceased some time back despite the fact the tax returns confirm otherwise. They could do with flaging up as big box too when you login to personal tax account.

Angelchops
Posts:11
Joined:Sat Aug 17, 2019 5:12 pm

Re: Ending A Partnership - Informing HMRC

Postby Angelchops » Fri Feb 12, 2021 12:00 pm

Thank you, I'm really grateful for this advice. I would certainly have made mistakes here without it.

Now you mention it, I am actually toying with the idea of starting another very small business next year. I don't even expect to make more than £1000 a year, so it's really more of a retirement hobby and it would be as a sole trader I think, rather than involving my wife as a partner. In actual fact, as I understand it, I wouldn't really need to register with HMRC at all as the business would be so small, but I have a small shortfall in my NI contributions so, as I see it, electing to pay class 2's on a voluntary basis would be the cheapest way of filling the gap... I'm 62 and was contracted out for a good deal of my working life so despite having 46 years of full NI contributions under my belt, I still won't quite get a full state pension. My wife is due to get a full state pension so she's ok.

Back to my original issue therefore, in this scenario I would...
1) Cease the partnership by putting the last day on both the SA800 and also on mine and my wife's personal self assessment returns.
2) Fill in one of the 'stopping self employment forms' but in this scenario for my wife only.
3) Register my own new 'sole trader' business for taxation with HMRC.

robbob
Posts:3150
Joined:Wed Aug 06, 2008 4:01 pm

Re: Ending A Partnership - Informing HMRC

Postby robbob » Sat Feb 13, 2021 10:35 am

so it's really more of a retirement hobby and it would be as a sole trader I think, rather than involving my wife as a partner.
Using the word hobby and sole trader in the same sentance is likely bring us accountants out in cold sweats - is it a hobby or a trade - you need to decide based on relevant facts and you may need to substantiate your decision to hmrc. from what you say its unclear whether this would be a trade or not - if you expect to make a profit that points towards trade - if you have minimal income that will simply cover the expenses of your hobby then this may not be a trade.

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim20090

Presuming you are happy that you are now sole trader.
1) Cease the partnership by putting the last day on both the SA800 and also on mine and my wife's personal self assessment returns.
Agreed
2) Fill in one of the 'stopping self employment forms' but in this scenario for my wife only.
Agreed
3) Register my own new 'sole trader' business for taxation with HMRC.
There is no need (1) you are already registered for clas2NI so are already in business and (2) you are already registered for self assessment returns so the mere swap from partnership to sole trader doesnt change anything in either regard - the new sole trader would be reflected on your self assessment that includes the partnership cessation so hmrc will know not to remove you from sa.

I am convenientyly ignoring all the complication sof the trading allowance here - that may lead to slightly quirky avenues being taken they are best addressed separately though -all you need to do though is contact hmrc and say tax return please (you can simply file unsolicited) or tax return no if the circumstances change ref whetehr you feel the need to file a return - if paying voluntary clas2NI it is probably easier to simply complete tax return rather than take hmrc up oin the offer of not needing to submit one - the class 2NI tap should always be turned on.

Angelchops
Posts:11
Joined:Sat Aug 17, 2019 5:12 pm

Re: Ending A Partnership - Informing HMRC

Postby Angelchops » Sat Feb 13, 2021 2:09 pm

Thanks again - sorry about the cold sweat lol :)

Hobby or trade? Well if I go ahead it’s actually going to be selling driftwood online to artisans or and crafters. Believe it or not there are quite a few people doing it. I’m blessed with living by the coast and there’s a plentiful supply of the stuff on my doorstep. I’m never going to get rich, far from it, but it would be nice to make a few bob along the way. I suppose I’d class my business as ‘online craft supplies’ - so probably a trade of sorts. Anyway, I’m ‘testing the market’ right now, if I can sell a few boxes between now and April, I’ll probably give it a go.

I think I will really need to close off the existing partnership and start afresh as it refers to a completely different trade ie a B&B as opposed to craft supplies. I have a completely new business name in mind too.


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