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Dealing with the partnership tax return

The partnership needs to file its return for the 2011/12 tax year by 31 January 2013, Simon Gray reminds GPs.

Late returns incur fines even if the tax due has been paid (Image: iStock)
Late returns incur fines even if the tax due has been paid (Image: iStock)

A partnership does not pay any income tax in its own right and is known as a ‘transparent entity’ for tax purposes.

This means that HM Revenue and Customs (HMRC) looks through it to the underlying partners and levies tax on them accordingly, based on their respective profit shares from the partnership.

Filing the return

However, even though a partnership does not pay any tax it must still prepare a tax return. The due date for submission of a partnership tax return (filed online) is 31 January following the tax year.  

So for example, the due date for the partnership tax return for the tax year 2011/12 - that is for the tax year ended 5 April, 2012 - is 31 January 2013.

Note that at present you cannot file partnership tax returns online using HMRC software in the same way as you can with an individual's tax return.

Currently, only commercial tax return software packages can be used to file partnership tax returns.

Representative partner

The ‘representative’ partner, typically the senior partner in the practice or the partner responsible for the practice’s finances, normally signs off the return.

Joint and several liability for partners (legal responsibility for each others’ actions in the business) does not apply to paying income tax.

So if one partner is late paying their tax bill, HMRC will not demand that the others pay that partner’s tax.

Returns submitted late

However, joint and several liability does apply over complying with the reporting requirements for the partnership tax return. In other words, if the return is submitted late - even if all individual partners’ tax bills are paid on time - then all partners, not just the ‘representative partner’ will be charged the automatic £100 fine for late submission.

Accounts not required

HMRC does not require the partnership’s annual accounts (prepared by the accountant) to be filed with the partnership return.

However a summary of some of the various income and expenditure account totals shown in the annual accounts do need to be entered on the partnership tax return, together with the profit figure shown in the accounts.

This profit figure is then adjusted for various factors to arrive at the ‘taxable profit figure’ that is then split between the various partners in line with their profit-sharing ratios.

Taxable profit

The final part of the partnership tax return, the adjusted taxable profit per partner, will form the first part of each of the respective partners’ individual tax returns.

A quirk in the preparation of partnership tax return applicable to the medical profession is recording and processing what are known as the personal income and expense claims (PIECs).

PIEC entries are the various categories of income and expenses received or borne by the respective partners but on behalf of the partnership. Examples include various private and professional fees and business motoring mileage claims.

Even though incurred personally by the doctors, PIECs are in reality practice income and expenses. So taking this into consideration is one of the adjustments that need to be done to get from the ‘accounts profit’ to ‘taxable profit.  

This adjustment for the PIEC entries is not made in the partnership tax return rather than in the annual practice accounts.

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