New partners - managing the change in tax status

Admission as a partner is an exciting time, often being an individual’s ambition for many years. This excitement must not lead to the important changes in status being overlooked by the firm or the individual.

New partners will receive a P45 marking their last day of employment; don’t let this be a worry for them.

Ideally, the following matters will have been discussed with prospective partners well before their admission:
• Profit sharing basis (fixed ‘salary’, bonuses, points profit, interest, etc)
• Basis of taxation - profit not drawings
• Timing of tax payments - particularly opening years and overlap profits
• ‘Benefits’ (health insurance, life cover etc) - paid by the firm or the individual?
• Pension planning (impact of change in status and options)
• Drawings and tax reserve policy
• Capital requirements - sources and tax relief
• National insurance contributions

Partners have three months to register with HMRC as self-employed. This is a straightforward process and is achieved by completing and filing an HMRC form which we can provide a copy of or complete on behalf of the new partner.

We have run ‘tax surgeries’ for new partners in client firms for many years which have eased the worries for the individuals as they move from employment to self-employment and would be delighted to arrange similar surgeries for your new partners, either one-on-one or as a group. Please let us know if this would be of interest.