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LLP Question regarding Initial Year’s trading and Interaction with Members Self Assessment Tax Returns put to CronerTaxwise

Q. I have a new LLP client which was incorporated on 18th October 2018 whose first trading accounts will be prepared to 31st October 2019. Having registered the LLP and its members (all individuals) under self-assessment, I am preparing the 2018/19 LLP Tax return but am unsure what figures to enter or whether estimates will be acceptable.

A. As there is no accounting period ending in the 2018/19 year, HMRC would prefer you to apportion actual figures (from the 31st October 2019 accounts/tax computation) for the period falling into the tax year ending on 5th April 2019. See page PTRG9 of HMRC’s SA850 Guide. Alternatively, you could simply enter the details for the full period to 31st October 2019 as adjustments can then be made on the individual members’ personal tax returns.

However, delaying submission of the 2018/19 Tax Returns until you have prepared and finalised the accounts to 31st October 2019 will give you a smaller window in which to complete and submit the Tax Returns on time and late return penalties can be expensive especially where partnership returns are involved. Therefore you could either submit a “provisional” return or change the accounting date. A provisional return has conditions which are outlined on page PTRG8 of the above SA850 guide. Remember that the LLP members’ Tax Returns will also be provisional returns and so you need to ensure that full details are provided to HMRC in the returns so that they are not rejected – see page TRG14 of the SA150 Guide. Alternatively, you could change the LLP’s accounting date to say 31st March 2019 (remembering to notify Companies House of the change using form LL AA01) if you consider this may be easier.

The information you have not provided is when the LLP actually started trading. Even with the best intentions, creating an LLP and hitting the ground running as a trading entity from day one of the incorporation is very rare. The 2018/19 SATR should show the trading results and trading period of the LLP as this will affect the basis periods for the individual members and so will affect the quantum of their profit shares. For example, if the trade commenced on 1st December 2018, then the first trading period starts with this date, not 18th October 2018. The basis periods of each LLP member will then run from 1st December 2018 to 5th April 2019. Unless you change the accounting period to 31st March 2019, you should ensure that the first period of trading covers a full 12 months of trading otherwise the 2019/20 Tax Returns cannot be finalised without the next set of accounts being made available. Continuing the above example, accounts to 31st October 2019 would only cover 11 months of trading and so would be insufficient to determine the assessable 2019/20 profits for each partner.

By CronerTaxwsie