Partnership - is this correct?

StupidLikeAFox

There are two partners in a firm

One partner is a PAYE worker and the other is working full time in the partnership

At the end of the year, the partnership makes €20k profit and the partners decide that the full-time partner should get the full allocation of profits for tax reasons

Three forms are submitted to Revenue:
1. A partnership tax return
2. A tax return for Partner A, showing X amount of PAYE income and €0 partnership income
3. A tax return for Partner B, showing €0 PAYE income and €20k partnership income

As all the profits are going to partner B, the 20k will be taxed based on Partner B's tax details. I did a rough calcualtion on deloittes tax calculator (using the default options), an income of 20k will result in a net income of €17,955 - so the total payable to Revenue as a result of this partnership will be €1,045

Does this sound correct?

nompere

€20,000 less €17,955 is €2,045, not €1,045.

StupidLikeAFox

Oops, the poor subtraction aside, is the logic correct?

i.e. the income tax liability of Partner B (€2,045) is all that needs to be submitted to the revenue?

nompere

The three returns seem fine.

Are the partners married to one another?

Otherwise it doesn't make sense that partner A works for nothing.

chickenlicken2

If the deloitte calculator is based on PAYE income then it's presumably applying a PAYE tax credit which wouldn't apply to sole traders/partner in a partnership so be aware that there may be additional PAYE balance if this credit isn't due.

dbran

What does the partnership agreement say regarding the split of profits. I would not think that you could simply allocate all of the profits to one person solely because that person have more tax credits available etc. It would have to be based on what they did in the partnership during the year and have some commercial basis otherwise the revenue would certainly question the split of the profits.

dbran

StupidLikeAFox

Apologies for the delay in getting back, forgot about this thread.

nompere wrote: »

The three returns seem fine.

Are the partners married to one another?

Otherwise it doesn't make sense that partner A works for nothing.

The partners are not married. Partner A has a full time PAYE job and rarely works in the business, the business is Partner Bs full time job

chickenlicken2 wrote: »

If the deloitte calculator is based on PAYE income then it's presumably applying a PAYE tax credit which wouldn't apply to sole traders/partner in a partnership so be aware that there may be additional PAYE balance if this credit isn't due.

I think this is the crux of the question. I have done lots of research but I just seem to find info on how to register, payment deadlines etc but cant find anywhere that will tell me "If a Partner earns 20k from a partnership, they must pay X amount of income tax, x amount of PRSI, X amount of USC etc" - I know how to keep accounts, work out the profits, split the profits between partners, but I cant find info on the actual rates of tax or how the final liability is worked out. Do the same tax credits available to a PAYE worker also apply to a sole trader/partner?

dbran wrote: »

What does the partnership agreement say regarding the split of profits. I would not think that you could simply allocate all of the profits to one person solely because that person have more tax credits available etc. It would have to be based on what they did in the partnership during the year and have some commercial basis otherwise the revenue would certainly question the split of the profits.

dbran

Partner B does 99% of the work (its their full time job whereas Partner A has a fulltime, PAYE job) so it shouldnt be an issue

chickenlicken2

From what you've said I really think you need to speak with an accountant about preparing the tax returns.