Partnership

A partnership is a business structure where two or more individuals work together with a view to make profits. They share profits and loss in accordance with terms of their partnership agreement. The partnership agreement is an important document and it should cover, among many other things, how the profits and losses of the partnership are going to be shares.

How to set up a partnership?

If your business is run as a partnership, then you are required to file a partnership tax return each year. When a partnership is formed, it must be registered immediately with HMRC by the nominated partner. The following details are required to register a partnership with HMRC:

  • Name of the partnership, trading address and nature of business
  • Type of partnership e.g. Partnership, Limited liability partnership (LLP, or Limited Partnership (LP)
  • Name of nominated partners and their correspondence address

In addition to registering the partnership, all the partners must register themselves for Self-Assessment and Class 2 NICs individually.

Responsibilities of the partners

The nominated partner is responsible for completing the partnership tax return, which will show the details of partnership profits or loss, as well as the details of each partner’s share of profits and losses on partnership statement.
Partnership is required to file an annual return but it is not a taxable entity in itself so there is no concept of a partnership tax liability. It is the individual partners who pay the tax.
The deadline to file a partnership tax return is the normal self-assessment filing deadline, normally 31 January following the end of the tax year.

How the partners are taxed

Once the taxable profits of the partnership are calculated, these will be allocated to the partners based on the profit sharing ratios. The individuals need to include their profit shares in their personal tax returns and to file these with HMRC.

The tax liability of the partners will depend on their share of profits and their income from other sources. The partners will be taxed as sole traders and therefore the tax and national insurance rates in relation to sole traders will be applicable.

How we can help you?

At Martax, we can help you with the following:

  • Registration of your partnership with HMRC
  • Registration of the partners with HMRC for self assessment and Class 2 NICs
  • Calculation of taxable profits of the partnership
  • Allocation of profits based on the profit-sharing ratio as per the partnership agreement
  • Preparation of the partnership tax return and the submission of the same with HMRC
  • Preparation of individual’s partners returns including profit shares from partnership and the submission of the same with HMRC
  • Advice on the payment of tax liabilities and the due dates

If you need any help or advice in relation to the above, please let me know.

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