This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our Cookie Policy.
Analytics

Tools which collect anonymous data to enable us to see how visitors use our site and how it performs. We use this to improve our products, services and user experience.

Essential

Tools that enable essential services and functionality, including identity verification, service continuity and site security.

Where Taxpayers and Advisers Meet

Barbershop - Paid partner from loan to company - No Partnership Agreement

je202003
Posts:3
Joined:Tue Dec 08, 2020 1:39 am
Barbershop - Paid partner from loan to company - No Partnership Agreement

Postby je202003 » Tue Dec 08, 2020 1:51 am

Hi,

I started a barbershop at the beginning of the year with a close friend with partnership intent with the general basis being:

- 50/50 profit distribution after my loan (startup costs) were recovered
- But in the meantime whilst the business didn't have any real profits I've been paying him £250/week to be able to pay his bills...
- The idea being it would be coming out of my additional cash added to the business and be an expense on the balance sheet

He's received around £6700 since February

Me being a dumbass assumed that it would be fine as long as the details were laid out in the partnership agreement, which we've not got around to creating...

We're now closing and trying to clean up the tax situation before we end up having a big falling out (He's sour that I'm not looking to fund the venture through the pandemic)

What are my options here?

>> Just file late paye and eat the late fees?
>> The partnership agreement gets backdated?

I've not been able to explain this situation very well to my accountant...

Any help would be appreciated

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Barbershop - Paid partner from loan to company - No Partnership Agreement

Postby bd6759 » Tue Dec 08, 2020 8:07 pm

It sounds like a partnership. It doesn't matter that it is not in writing, but it is difficult to enforce terms if it is not in writing.

Draw up partnership accounts to cessation. If your accountant doesn't know how to do that, you should find another one.

je202003
Posts:3
Joined:Tue Dec 08, 2020 1:39 am

Re: Barbershop - Paid partner from loan to company - No Partnership Agreement

Postby je202003 » Tue Dec 08, 2020 9:03 pm

It sounds like a partnership. It doesn't matter that it is not in writing, but it is difficult to enforce terms if it is not in writing.

Draw up partnership accounts to cessation. If your accountant doesn't know how to do that, you should find another one.
The problem I have is that there wasn't any profits to be distributed >> meaning he was paid from gross rev, not profit and I just kept recapitalising the business until we had grants this year

My accountant said that you can't distribute non existent profits so not sure where that leaves the tax break / expense / liability on the £6700 I've paid him

Thanks for the first reply btw :)

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Barbershop - Paid partner from loan to company - No Partnership Agreement

Postby bd6759 » Wed Dec 09, 2020 12:04 am

You mention loan to company. Is this a company or a partnership?

A company is an entity you register at companies house. It has shareholders and is run by directors. No partners.

A partnership is two or more people together conducting a business in common. No shareholder, no directors. Just partners.

je202003
Posts:3
Joined:Tue Dec 08, 2020 1:39 am

Re: Barbershop - Paid partner from loan to company - No Partnership Agreement

Postby je202003 » Wed Dec 09, 2020 1:02 am

You mention loan to company. Is this a company or a partnership?

A company is an entity you register at companies house. It has shareholders and is run by directors. No partners.

A partnership is two or more people together conducting a business in common. No shareholder, no directors. Just partners.
Not a company / entity

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Barbershop - Paid partner from loan to company - No Partnership Agreement

Postby bd6759 » Wed Dec 09, 2020 12:05 pm

My accountant said that you can't distribute non existent profits so not sure where that leaves the tax break / expense / liability on the £6700 I've paid him

Tax is charged on profits, not drawings (don't know why your accountant is talking about distributions). Drawings are a balance sheet matter, and have no effect on the profit or loss. I stand by my earlier reply.
Draw up partnership accounts to cessation. If your accountant doesn't know how to do that, you should find another one.


Return to “PAYE and Payroll Taxes, National Insurance, NICs”