Note: A film partnership is certainly not the most common case, but taken big picture, it's important to know that you can use not only an account but also an income as the preferred payment source for any expense, including a debt payment.
Q - I have a client who has invested in a film partnership. He has received tax relief up front and then has an ongoing tax liability on an income stream. However, the client never receives the income as it is used to service debt. How is this scenario input?
A - Regardless of whether the client receives this income, the money would need to come from some source in order to make the debt payments. You would need to account for this income somehow or simply leave it and the debt out of the plan.
I would recommend entering the income on the Other Income screen as taxable income, subject to income tax but as an “other income” source not subject to NI or enter it as a non-taxable income and enter an amount that is net of taxes. A new expense might be easier to match to the debt payment amount but I leave that to you.
Be sure to check the Advanced Settings > Income Growth setting to verify that this income is being grown at the appropriate rate, if at all.
Enter the debt on the Debts screen.
You will note that there is an item linked automatically to the debt, as shown by the icon next to the debt on the ledger. This is the debt payment expense, which is found on the Expenses > Basics screen.
Go to that screen and select the debt payment expenses in the ledger, right.
Expand Advanced Settings > select Expense Payment Source.
From the drop down list select the other income, entered earlier, as the preferred payment source for the debt payment.
I usually recommend that you do not select the Only Allow Preferred Source to Pay Expense option as that can, in some cases, case artificial shortfalls if the income fails to meet the total amount needed to make the payment, however, in this case you might try it.
Finally, when viewing the Let's See charts, click any bar of the chart while these payments are active. Click Detailed Info. The chart details panel will display. Select the Expenses tab. Mouse over the debt payment expense. You should see in the pop-up details the expense payment source shown as being the other income.