How LLP partner current accounts and drawings are controlled
Partner drawings outrun profit invisibly when drawings are fixed annually and profit varies monthly, because nothing in the ordinary management accounts shows the cumulative position of each partner's current account until the year end. This is an illustrative example of how Salt approaches LLP reporting, using a five-partner UK professional services firm as the profile.
Scenario — an illustrative example of how Salt approaches this problem. Not a description of a specific client engagement.
The business shape it describes: UK professional services LLP, 5 partners.
- Scenario covers
- Bookkeeping, partner current account reconstruction and monthly drawings reporting
- Jurisdiction
- United Kingdom
- Sector
- Professional services
- Take a UK professional services LLP with five partners drawing a fixed monthly amount, set at the start of the year against the prior year's profit.
- Profit has softened and drawings have not changed. Nobody is tracking the cumulative position, and the current accounts have not been reconciled in over two years.
- Cumulative drawings exceeding allocated profit for several partners, which leaves those partners overdrawn against the LLP without anyone having decided that should happen.
- No tax reserve held against partner profit shares. Members of an LLP are taxed on their profit share through self assessment whether or not it was drawn, so the January liability arrives regardless of what is left in the account.
- Current accounts unreconciled for over two years, mixing profit allocation, drawings, expenses paid personally and capital introduced into one balance.
- No monthly reporting of drawings against allocated profit, so the position is only visible once the annual accounts are prepared.
- Rebuild each partner's current account from the last point that genuinely reconciles, separating profit allocation, drawings, capital and expenses.
- Introduce monthly reporting of drawings against allocated profit per partner, so the cumulative position is visible while it can still be changed.
- Establish a tax reserve held centrally against profit shares rather than left to each individual, since the liability arises on allocation rather than on drawing.
- Agree a drawings policy that flexes with profit rather than being fixed for twelve months against a prior year.
- Prepare the partnership and member data for the LLP's own accountant, who handles the partnership return and the members' self assessment.
- Rebuilding two years of partner current accounts is ordinary reconstruction work. Presenting several partners with a cumulative overdrawn position, and holding a tax reserve centrally instead of trusting each of them to, is not.
- Both have to happen in the same piece of work, with the people affected also being the client.
- Each partner would be able to see their cumulative position monthly rather than discovering it after the year end.
- The tax reserve would be held against the profit share when it is allocated, which removes the recurring January cash problem.
- Drawings would be set against a policy that responds to actual profit rather than a figure fixed twelve months earlier.
What we'd flag
This work tells partners something they would rather not hear about their own accounts, and the people receiving that message are the ones paying for the work. Reconstruction is straightforward; the conversation is not.
How LLP partner current accounts and drawings are controlled
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