BIM74050 - Abolition of the cash basis: how it effects partnerships - FA98/SCH6/PARA6

The legislation covers continuing, new and departing partners

For partnerships the adjustment is calculated from the figures in the partnership accounts in exactly the same way as a person who carries on business on their own account.

It is charged each year on the individual partners.

For the first year each instalment is apportioned among the partners in accordance with their profit-sharing entitlement in the twelve months ending immediately before the date on which true and fair view was adopted - FA98/SCH6/PARA6 (3)(a)(i).

For subsequent years each instalment is apportioned according to the profit sharing arrangements for the twelve months immediately preceding the anniversary in that year of the date when true and fair view was adopted - FA98/SCH6/PARA6 (3)(a)(ii).

This means that, as partners come and go, the individuals who are charged to tax will change, as will the amount on which they are charged as profit-sharing entitlements change. This also means that any election to pay more than the normal instalment for any year must be made by all the partners who are charged for that year - FA98/SCH6/PARA6 (3)(b).

If a partner retired from a partnership in March 1999 they would not be a member of the partnership when the uplift took place. They may not expect to bear any of the catch up charge. Nonetheless part of the catch up charge assessable in 1999/00 will be allocated to the departing partner in accordance with that partner’s profits share for the year ended 30 April 1999 - FA98/SCH6/PARA6 (3)(a)(I).

In like manner a partner who joins a firm after the uplift and before the 10-year period expires will not have shared in the uplift but will bear a proportion of the amount assessable in each year based on their share of profits for the relevant period to 30 April - FA98/SCH6/PARA6 (3)(a)(ii).

There is nothing to prevent departing or joining partners from seeking an indemnity from the other partners to cover any charge.

Where a profession or vocation carried on by a partnership is discontinued (or deemed to be discontinued) each partner’s share of any amount chargeable on or after discontinuance is determined

1. If the discontinuance is on the date when true and fair view is adopted, according to the profit sharing arrangements for the twelve months ending immediately before that date.
   
   
2. If the discontinuance occurs after the adoption of true and fair view but before the first anniversary of that date, according to the profit sharing arrangements for the period between that date and the date of discontinuance.
   
   
3. If the discontinuance occurs after the first anniversary of the date of adoption of true and fair view, according to the profit sharing arrangements for the period between the immediately preceding anniversary and the date of discontinuance.

See FA98/SCH6/PARA6 (4).

Any election under FA98/SCH6/PARA5 (see BIM74045) after the discontinuance must be made by each former partner separately - see FA98/SCH6/PARA6 (4)(b).

See BIM74055 for an example involving a partnership cessation.