As a Sole Trading - Partnership (I.e. 2+ Sole Traders working together as opposed to a LTD Partnership) hopefully someone can confirm my working logic in terms of anticipating Taxable Income & Personal Allowances?
Would the best way of calculating Taxable Income be as follows?
Operating Profit - (Personal Allowance x Trading Partners) = Taxable Income?
E.g.
Operating Profit = £30,000
Personal Allowance = £10,600
Trading Partners = 2
Taxable Income = (£30,000 - (10,600 x 2 = £21,200)) £8,800
Operating Profit is what I have termed my Gross Profit - Indirect Costs or Overheads etc.
I can also appreciate that there are more allowances & deductions to go through than this (such as age allowances, income £100k+ etc.) but I guess what I’m getting at is what is perceived the best way to account for the split of profits when making Tax and NI contribution calculations - do you add all the allowances together like the example above, divide the profit up first into their respective shares, or is there a better way?
Appreciate any feedback.
John.
For partnerships you have to fill in one tax return for the partnership as a whole detailing the overall income, expenses and capital allowances for the whole business. The bottom line net profit or loss figure from this is then split between the partners and declared on your individual tax returns as taxable income - how much tax you actually pay on it depends what other sources of income each partner has.
How you split the profit is up to you, you may have spelled it out in advance in your partnership agreement or you may want the flexibility to vary it to make best use of your respective personal allowances. This is where an accountant can effectively pay their own fees, by working out the optimal split to minimise the overall tax paid, making the best use of any other allowances.
Thanks Ian,
I think I was suffering from looking too long at a something and creating a problem that wasn’t really an issue (It was a long day yesterday 
)
Reading your notes and reviewing my figures with fresh eyes this morning, I think gives me the answer to my own question - for the business it is largely irrelevant. As you say it more comes down to the specific circumstances for the individual(s) and their own respective Tax returns.
John.