UK Fact-File Part 2:
Individual Business Domestic Taxation

2.6 UK Partnership Income Taxation

A partnership is where two or more people share (usually equally) the costs and responsibilities of setting up in business, and each takes a share of the profits. Each partner is personally liable for any debts that the business might accrue. It is advisable to ask a solicitor to draw up a simple partnership agreement.

In the event of the resignation, death or bankruptcy of a partner, the partnership must be dissolved. However, it is still possible for the business to continue in such an event.

Each partner is self-employed and each is responsible for registering with HMRC. Each partner must submit self-assessment tax returns and is responsible for paying his or her own National Insurance Contributions, and income tax on their individual share of profits. In addition to self-assessment tax returns, a Partnership Return (form SA800) showing each partner’s share of profits (or losses) should be filed; a partner should be nominated for the purposes of filing the Partnership Return.

Where a partner is a limited company, it will face corporation tax on its partnership income.

Another form of partnership is a Limited Liability Partnership (LLP). With this form of partnership, there is limited personal liability for individual partners; otherwise, for tax purposes, an LLP does not differ greatly from an ordinary partnership.

When a partnership registers for VAT each partner must sign the registration form (VAT 2) and provide their national insurance numbers, so there is a joint responsibility for VAT in a partnership. The VAT return would be in the trading name of the partnership.