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Tangled trade

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25 October 2011
Issue: 4327 / Categories: Forum & Feedback
A taxpayer has carried on her business as a partnership between herself and a limited company of which she is the sole director and shareholder

I have a prospective new client (Ms X) who has a one-person limited company (Z Ltd) and also has a partnership between herself and Z Ltd.

The partnership operates a very successful trade which has been running for six to seven years.

The partnership splits the profit 50:50 between the partners (i.e. Ms X and Z Ltd) so she pays the tax on her share and Z Ltd pays corporation tax on its share. So far so good.

Z Ltd has never ever drawn its profit from the partnership and no dividend has ever been declared by the company. So the after-corporation tax profit has built up in the company and reserves are now about £600 000.

The corresponding entry in the accounts is shown as a fixed asset investment ‘shares in group undertakings’. This is simply the amount...

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