Professional Practices: Personal Tax Services

At MHA MacIntyre Hudson, our typical personal tax services for partners and documentation required is outlined below.  

Documentation required

HMRC registration: 

You will be required to submit form SA401 within three months of becoming a partner to HMRC.

National Insurance: 

Your class 2 and 4 national insurance liability is calculated each year along with your tax liability for the year.

Authority to act on a personal basis: 

With regards to agent authority to act for you personally, this is requested automatically on the date that you complete the engagement letter if we have received details of your Unique Taxpayer Reference (UTR) and HMRC will issue a letter with a code that should be forwarded to MHA MacIntyre Hudson as soon as it is received.  If you have not been given a UTR then a paper 64-8 will be issued.  You will also receive an engagement letter to sign should you wish to take advantage of the tax team completing your tax returns.  

This service is only available to partners and may contain restrictions on the services we are authorised to provide by the partnership.  Any fees for services not covered by the partnership agreement would be agreed with you personally before any work is undertaken.


Tax calculations

Drawings:  

Should a drawings model be prepared by your firm, it should include a tax calculation based on your estimated profit in the first instance. 

The tax ‘withheld’ via the drawings model is not charged to your account; it remains as ‘withheld profit’ until the tax return and supporting tax calculation for the year is prepared. 

Drawings figures should not be used to complete your tax return or if calculating possible pension contributions. Final figures will be available following the year end upon completion of the accounts.


Tax payments

Tax payments by your firm will be charged to your account and any repayments similarly credited shortly after they are made/received.


Timetable

April: You will be asked for details of your personal income and reliefs of the relevant tax year.  

August: Deadline for receipt of your personal details.  

By December: Your tax return will be completed using actual taxable profits and be issued to you via e-mail.  

January: Submission of your tax return. 

Following January: HMRC have until the following 31 January after the submission deadline (i.e. 12 months) to make any enquiries into the return, and assuming there are none, the liability will become final at that time.  

When it comes to partnership profits and your share, it is important to understand accounting profits reported in the accounts are not necessarily the same once non-tax allowable expenditure is accounted for.  It is the post-tax profit, rather than profit in the accounts which becomes relevant.  For example, accounting profit of £150k could end up as £170k in your account because of disallowable expenses for tax purposes, or should capital allowances be available, it may reduce to £130k.  The other major difference is that accounting year ends may differ to tax year ends and can cause confusion.

 

Example Tax Calculations

Accounting Profit to Taxable Profit 

Both the accounting and taxable profit figures contain income from the various sources i.e. rents received, interest received, dividends received and any capital gains that are relevant to the partnership.  

On the tax return these items would be shown individually due to the differing taxation and national insurance rules.

The taxable profit could also include your personal interest on capital, mileage allowance and motor expenses including capital allowances depending on the partnership agreement.

The following estimated calculations assume no other taxable income for the partner.

The first example covers the position where the partnership accounting year end is co-terminus with the tax year i.e. 5 April. The second example covers the position where the partnership has a 30 June year end.  These illustrations seek to demonstrate the concept of “overlap profits” where the accounting year end is not co-terminus with the tax year.

Example 1

Partner start date - 6 April 2017

Accounting profit - 100 units @ £1,000

Taxable profit = £100,000 plus interest on capital, mileage allowance less 35% motor expenses = £10,000

Basic periods

        £
Accounts y/e 5 April 2018
Profit taxable (365 days)
110,000
Tax Year 2017/2018  
6 April 2017 - 5 April 2018 (365 days)  
Profit taxable £110,000 / 365 days x 365 days 110,000
Tax & NICs due 39,463

The first charge to tax will be the estimated tax due for 2017/2018 which would be approximately £40,000 (£39,463 rounded).  If profit is withheld under the drawings rules, there should be sufficient profit withheld to be allocated against this amount in the first instance with the remainder being available to the partner.

Example 2

Partner start date - 1 July 2017
Accounting profit - 100 units @ £1,000
Taxable profit = £100,000 plus interest on capital, mileage allowance less 35% motor expenses = £10,000

Basic periods

           £                 
Accounts y/e 30 June 2018
Profit taxable (365 days)
110,000
Tax Year 2017/2018  
1 July 2017 - 5 April 2018 (279 days)
Profit taxable  £110,000 / 365 days x 279 days
84,082
Tax & NICs due 26,578
Tax Year 2018/2019  
1 July 2017 - 30 June 2018 (365 days)
Profit taxable y/e 30 June 2018
110,000
Tax & NICs due 39,200
Rounded 40,000
Overlap (accounts profit taxed twice) (84,082)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The first charge to tax will be the estimated tax due for 2017/2018 which would be approximately £27,000 (£26,578 rounded).  If profit is withheld under the drawings rules, there should be sufficient profit withheld to be allocated against this amount in the first instance with the remainder being available to the partner.

Tax Charges

Depending on how your partnership calculates and withholds profit to cover the tax liabilities due, you may be provided with a similar calculation by the partnership each year.

In your first tax year, you will be subject to tax on your profit allocation for the period from the date of your appointment to the following end of the tax year. In the second tax year, you will be subject to tax on the profits for the full year to the end of the firm’s financial year. This can result in some profits being taxed twice, known as overlap profits. 

Each partnership has internal mechanisms to deal with the double taxation aspects and any queries should be addressed to the partnership finance team in the first instance.

Contact us

If you would like further information about our personal tax services for partners, or just want to talk through some questions or ideas over the phone, please do not hesitate to get in touch. Alternatively, you can send us an online enquiry.