What is a partnership?
If you want to start a business with another person or company, then you need to know about running a partnership.
What is a partnership?
A partnership is when you and your partner(s) share responsibility for your business. A partner doesn’t have to be a person, it could also be a limited company.
Both you and your partner(s) have responsibility for any losses and business costs. You also share the business profits. But, each partner will pay tax individually on their share.
It’s also possible to set up 2 more types of partnership: a limited partnership, and a limited liability partnership. These have different rules and responsibilities from a partnership.
How to set up a partnership
To set up a partnership you need to:
- Choose a business name
- Choose a ‘nominated partner’ (the person responsible for submitting the Partnership Tax Return and keeping records)
- Register your partnership with HMRC
You need to register your partnership with HMRC by 5 October in your business’s second tax year. If you don’t, you could be charged a penalty.
It’s also important to draw up a partnership agreement. The partnership agreement will set out the terms and conditions of running your business together, for example how much cash each partner will contribute, how you share the profits or losses and any other responsibilities you will manage.
What tax do I pay in a partnership?
Income tax
Each member of the partnership needs to register for Self Assessment with HMRC and submit a Self Assessment tax return. You will pay income tax on your income and/or share of the profits from your business partnership.
Find out more about Self Assessment tax returns here
National Insurance contributions
Each partner is also responsible for making their National Insurance contributions. You pay your National Insurance as part of your Self Assessment tax return.
Find out more about National Insurance contributions here
Partnership Tax Return
When the nominated partner fills in their Self Assessment tax return, they should also fill in form SA800 to file a Partnership Tax Return.
Corporation Tax
If one or all of the partners are a company, then they will have to pay Corporation Tax their partnership profits.
Find out more about Corporation Tax
Record keeping for partnerships
The nominated partner is responsible for record keeping. They will need to keep records for at least 5 years after 31 January of the relevant tax year.
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