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This screen is used in the same way for both partnerships and sole traders but is accessed via different menus:
Sole traders : Select Edit followed by Cash basis.
Partnerships : Select Trades, Partnerships, Data Entry, Trading and Professional Income, Withdrawal of Cash Basis Adjustment.
Business Tax completes the additional information box on page 4 of the partnership return with the:
total amount of the adjustment
amount (if any) charged to tax in earlier years
amount charged to tax this year
amount to be charged to tax in future years
Enter the total catching up charge in the field at the top of the screen.
If the catch up charge is negative the adjustment is included in box 3.63 (2000 - 3.50) and added to any other expenses in this category. The negative adjustment is included in the Trade Profit (Loss) Computation to give the correct Trade Profit.
Select the first year in which the catch-up charge will be taxed from the drop down list.
Then the total will be charged to tax in 10 installments over the tax years that follow.
Pre-2014 this will be 10 years: 2014 onwards, please select the appropriate time frame from the drop-down box.
Business Tax calculates 10% (for a catchup period of 10 years) and 1/6th (for a catchup period of 6 years) of the original total adjustment and displays it in this column.
If the partners elect to be charged on more than the minimum you should enter the full payment in the "Actual used" field for the tax year. Business Tax automatically amends the calculation of the catch-up charge for future years.
Enter the amount to be charged to tax in the tax year in the Override field. Remember this amount may not be 10% or 1/6th of the catch-up charge if:
the partners have elected to be charged on more than the minimum installment
chargeable profits are lower than the catch-up charge in which case the amount charged to tax may be capped to be 10% of the chargeable profits.
Each amount to be charged to tax should be entered. Business Tax will show a running total of the amount outstanding and the amount charged to tax so far.
The catch-up charge is apportioned between the partners according to their profit sharing ratio for the accounting period ending in this tax year.
If the partners later change their accounting date the catch-up charge should still be split according to the old accounting date. Where this is the case the user must change the split between the partners in Override return totals.
If 10% of the profit is less than 10% of the adjustment the partnership may restrict the amount to be charged to tax to 10% of the profit. If Business Tax detects that this is the case the following warning message will be displayed:
"The amount entered is more than 10% of the profit which is £x. Do you want to use 10% of the profit rather than use 10% of the catch-up charge?"
Select Yes to replace the amount you have entered with 10% of the profit. Select No to continue with the amount you entered.
Business Tax will also warn you if the amount you have entered is smaller than 10% of the catch-up charge.