Self employed partnership

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    Mike Bailey

    We have a dispute in relation to the assessment of a self-employed claimant’s net earnings from self-employment.

    She is in partnership with one other person. The partnership agreement states that the profits are to be split as follows – £1,200 per month “salary” to the other partner, our claimant to receive her expenses, 1/3 of remaining profit at end of each “project” to each partner with the other 1/3 going into the company.

    The other partner has written to us and stated that it was agreed she would take £1,200 pcm to cover the cost of running her household – the registered premises of the business. Our claimant does not take a “wage” from the business at this time as her tax credits cover her monthly expenses and the business is “not yet affluent enough to subsidise the running of two households where there is no secondary income”. She goes on to say that when the business grows the partnership will be revisited and amended.

    The original assessment saw the decision-maker calculate net profit for the business (no allowance made for salary/drawings) and divide it by 2.

    I am not sure whether this is the right approach to take because of the nature of the partnership agreement as it currently stands. Should our claimant’s share of the profits only be calculated based on what is left after the other partner has had her “salary”? I am however, particularly concerned by the other partner’s statement as to how they have come to the arrangement that they have.

    Any thoughts would be welcomed.

    Kevin D

    In my view, the “wage” paid to the partner is nothing more than drawings. If it is a partnership of self-employed earners, neither is an employee and neither can be an employee of the other.

    So, how to apportion? As long as you are satisfied the agreement reflects the reality, I’d follow it in terms of apportionment. There is certainly nothing to justify a 50/50 approach. The one thing I’d be careful of is to avoid double-deducting expenses – i.e. expenses deducted / allowed for in respect of the partner cannot be deducted again from any remaining net profit of the claimant.

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