Partnership Services

Partners pay three different taxes to HMRC based upon their share of profits:

• Income tax – based upon a percentage of how much your share of the profit is;
• Class 2 National Insurance contributions – a fixed fee each week; and
• Class 4 National Insurance contributions – also based upon a percentage of how much your share of the profit is.

Partnerships are not liable to any profit-based taxation themselves although they may be liable for other forms of tax which we cover below.

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Tools and resources

To calculate the profits made by a partnership, you need to subtract all of the allowable business expenses and capital allowances from the turnover produced by your partnership between 6th April and 5th April.

Not all expenses are allowable and for some expenses, only a proportion of the cost may be successfully claimed. In these instances, disallowed or partial expenses are added back to your profit which increases the amount of tax paid.

Please note that a partnership itself does not pay tax – it’s the partners themselves who pay tax.

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Tools and resources

The key pros of a Partnership include:

• Similar to sole trader, i.e.,

• Low cost, easy to set-up;
• Full control retained; you can minimise costs in order to maximise your profits;
• Flexibility in profit share amongst the partners, subject to the partnership agreement;
• Minimal financial reporting and information in the public domain; and
• It’s easy to change your minds and close the business if it doesn’t work for you.
• Plus:

• Potentially more potential to raise finance as dependent on more than one person; and
• Two or more heads can be better than one.

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Tools and resources

The key cons of a Partnership include:

• Similar to sole trader, i.e.,

• Full liability for debt i.e., no limitation of liability;
• Often pay more in tax, once you get to a certain size; and
• Lacks credibility in market meaning often less access to finance.
• Plus:

• Can be more complex than sole traders to close, especially without a strong Partnership Agreement.

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Tools and resources