We’ll answer these questions –

  • How do I register a partnership with HMRC?
  • How are business taxes calculated for partnerships?
  • How are National Insurance contributions paid for partnerships?
  • What are payments on account?
  • When should Partnership Tax returns be filed?

Partnerships can be an easy way for two or more people to run and own a business together.

You’ll be pleased to know the tax system for partnerships in the UK is less complicated than for a limited company.

The major difference between partnerships and limited companies is that partners are personally liable for any debts incurred by the business. Therefore, if the business becomes insolvent, then as a partner you are obliged to pay creditors from your own pocket whereas with a limited company there are no risks to personal assets as the business is considered a separate entity from the owner.

How Do I Register a Partnership With HMRC?

Registering a partnership and filing tax returns are where some of the burdens lie for partnerships in the UK.

When you set up your business as a partnership you are running a business as a self-employed individual but with other partners. Therefore, each partner must register for self-assessment as an individual.

So, if you’re already registered as self-employed you will continue to submit a Self-Assessment Tax Return under your existing unique taxpayer reference (UTR). Partners that are not already registered with HMRC must do so. You will then also need to fill in another form to register the partnership as a whole.

You will need to choose a nominated partner. The nominated partner will be responsible for managing the partnership tax return and keeping business records.

You must register by 5th October after the end of the relevant tax year. For example: the registration deadline for the 2018-19 tax year (April 6th 2018 – April 5th 2019) is 5th October 2019.

How Are Business Taxes Calculated for Partnerships?

Individuals that have entered into a partnership are taxed on their agreed share of profits received from the business.

For the 2019/20 tax year, each partner will only have to pay tax on earnings that exceed £12,500.

The amount of tax you pay is calculated on your share of business profits.

  • An income from £12,501 to £50,000 is subject to the basic tax rate of 20%
  • Earnings between £50,001 and £150,000 are subject to the higher tax rate of 40%
  • Earnings over £150,000 are payable at a 45%

The good news is, you are entitled to claim tax relief in relation to business expenses that have been incurred wholly and exclusively for the purpose of the business such as:

  • Travel and subsistence
  • Advertising and marketing
  • Work uniforms
  • Staff wages or salaries
  • Memberships and subscriptions
  • Insurance
  • Accountancy fees

For a detailed description of tax reliefs for partnerships visit the HMRC website.

In order to claim deductions, you must keep an accurate account of your expenditure and save the receipts.

The bad news is that all this bookkeeping is additional administrative work you could probably do without. Admin can be tedious but someone has got to do it!

How are National Insurance Contributions Paid for Partnerships?

National insurance contributions for partnerships are paid in the same way as sole traders/self-employed. The charge relates to the profit share of individual partners of the business. It’s a two-tier system – Class 2 and Class 4 contributions.

If your earnings exceed £6,365 a year, you should pay Class 2 contributions at a flat rate of £3.00 a week.

The easiest way to pay Class 2 NICs is through your Self-Assessment Tax Return.

If the profit share you receive from your business is between £8,632 and £50,000 a year, you must also pay Class 4 contributions at a rate of 9% on your earnings. A further 2% is paid on earnings over £50,000.

What Are Payments on Account?

Individuals that are registered as self-employed/sole trader have to make ‘Payments on Account’ to HMRC. The payments cover the cost of your tax obligation together with Class 4 NICs.

As a partner, payments on account for tax and Class 4 NIC, are due on 31 January and 31 July. The amount of interim payments is a forecast of the total liability based on previous years.  The only exemption is if:

  • Tax payable on the previous year’s earnings is less than £1000
  • You’ve paid more than 80% of your tax liabilities already

You do, however, have the right to request to lower the payments if you think your obligations will be less than the previous year.

When Should Partnership Tax Returns Be Filed?

Tax returns must be submitted to HMRC by 31 October for paper returns and 31st January if you are submitting online. If you also receive an income through PAYE (if you also have a part-time or day job for example), you must submit the online return by 30 December if you would like tax to be collected through PAYE via your tax code. The amount owed must not be more than £3,000.

Penalties are issued by HMRC if tax returns are incorrect or late.

Partners of a business are obligated to submit a self-assessment tax return (SA100) giving details of their income. Partners will also fill in the supplementary pages (SA104S) that accounts for their share of profits or losses.

You also need to submit a partnership tax return form for the business partnership (SA800) to show the profits and losses for the business and the share of profits awarded to each partner.

Relieve your tax burdens

Filing tax returns and keeping accounting records for your business is a worry that most partnerships can do without. This is where a qualified bookkeeper proves to be invaluable.

At The Business Bookkeeper, we can remove this responsibility from you so you can concentrate on enjoying more important things in life, such as your family, friends and clients.

Give us a call on 020 3137 6565 or get in touch to see how we can help you.