Partnership accounts and gift net profit

M

mouse2

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I am completing partnership accounts for a father and son. The son receives all the net profit i.e half the profit is not paid over to the father, this is covered as a gift from father to son and is within the aggregated threshold. This is ok tax wise as want to do everything above board?
 
The father will still be assessable to his share of the profits, regardless of what he does with the money.
 
I agree the father pays his share of tax aswell as the son, its the net profit afterwards that is not received by the father. This is covered by the gift threshold from father to son. The reason for the above is that less tax is paid by the son in partnership accounts then if he is out on his own. The son also pays the fathers tax due, therefore net profit due to father minus tax due by father is equal to gift from father to son.?
 
All very complicated. If you are professionally advising these people, you would need to satisfy yourself that these arrangements are fully above board from a tax viewpoint, and also that they are not likely to be deemed by Revenue as artificial tax avoidance. To be frank, I'm not sure if AAM is a suitable means of ensuring this.
 
presumably profits are appropriated between partners current accounts and drawings / income tax paid are deducted from current accounts. If the son is spending more than his share of the profits he will then owe the partnership money & similarily if the father is not using his share of profits the partnership will owe him money - expample :

Net Assets
 
Net Assets48,000Capital & ReservesCapital Account Father1,000Capital Account Son1,000Current Account Father:Net Profit Appropriation50,000Drawings0Tax Paid(12,000)38,000Current Account SonNet Profit Appropriation50,000Drawings(30,000)Tax Paid(12,000)8,00048,000
Note if the partnership is dissolved and the father forgoes the money due to him at this point the gift is made and at this point it arises for CAT
 
To avoid a tax evasion charge you would need to prove that the father was an active partner in the business. To do this you would need to prove 1) father actively works in the business 2) that he has a management function in the business (makes decisions relating to the future direction of the business) 3) the money should go to the father first before he gifts the money back -these events should not be related. As Ubiq states you should really check this out with a professional advisor. If I was a Revenue Auditor I would really vigourously tackle this 'arrangement'.
 
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