PARTNERSHIP INCOME- ACC RESIDUAL CLAIMS LEVY- CLASSIFICATION BY PARTNERS
THE NEW POLICY
This article deals with the way in which partners in a partnership are classified for ACC purposes.
The residual claims levy is payable by:
Employers on earnings paid to their employees, and
Self-employed people on their earnings as a self employed person.
A person deriving a share of partnership profits is a self-employed person and calculates this levy in their IR3 Income Tax Return.
This policy change first applies to the residual claims levy calculated in 2001 IR3 tax returns.
With effect from 1 April 2001, partners are able to classify themselves for residual claims levy purposes on their share of partnership income according to the activity personally performed for the partnership. Previously, each partner was required to use the classification that reflected the business activity of the partnership regardless of the duties personally performed.
Where a partner derives a share of earnings from two or more partnerships, or personally derives other self-employed income, the residual claims levy must be calculated on all shares of partnership earnings using the relevant highest rated classification. The exception is that if a particular business activity accounts for 5% or less of the person's self employed earnings, then that activity can be ignored for the purposes of determining the appropriate classification.
Partners paid a regular wage or salary have earner premium deducted at source as a component part of the PAYE deuctions. In terms of its employer responsibilities, the partnership is required to pay the residual claims levy on these earnings using the classification that relects the business activity of the partnership.
Pierre and Suzanna are partners in the Plumage TV Aerial Installation Partnership. Pierre does all the installation work and Suzana does all the bookwork and administrative tasks.
In his 2001 IR3 tax return, Pierre must classify himself for residual claims levy puposes using the most appropriate classification- Household Equipment Repair Services- Electrical and Electronic 52610 at the rate of 38 cents. Suzanna, on the other hand, can classify herself in her tax return according to the work she actually performs for rthe partnership. The most accurate description is Business Administrative Services 78540 at a rate of 24 cents.
However, if Suzanna has an interest in a contract grape-growing venture, in which she actively participates in all the veneyard operations, she must pay her residual claims levy at a higher rate which is Grape Growing 01140 at a rate of 39 cents on her shares of income from both partnerships.
A sleeping partner is a partner who has capital in a partnership and shares in its profits without taking part in its management or day to day running. A sleeping partner is not liable for the residual claims levy on their share of the partnership income. The share of partnerhip income of a sleeping partner is excluded from the definition of "Earnings as a Self-employed Person" as it is not dependent on the person's personal exertions.
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