An unincorporated partnership is a type of business with two partners or more which has not yet become a limited company. Black and White Accounting offers Accounts & Tax, Book Keeping & Payroll, Business Planning and Software Training to partnerships in Surrey, Hampshire and surrounding areas.
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What taxes do partners pay?
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.
Partnership tax return
Every year, a partnership must produce a partnership return and send it to HMRC. The form is called the SA800.
How do you calculate the profit a partnership makes?
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.
Individual taxes for partners
When drawing up a partnership agreement, the partners agree how they share the profit from their trading activities. Although many partnerships divide profits equally among members, this is not always the case, particularly if one partner introduced more capital and/or assets at the start of trading or later on.
On the SA800, you declare to HMRC exactly how the profits are to be split between the partners and it’s on this profit that the individual partners are personally taxed.
As with the partnership tax year, Individual tax years run from 6th April to the 5th April, not 1st January to the 31st December. Each partner will need to declare their individual profits from the partnership on the partnership pages of their SA104s form.
You’ll need to submit your SA104s tax return in by the 30th October if you use the paper form after the 5th April. For taxpayers using the online form, the deadline for submission is the 31st January following the end of the tax year.
Payment of taxes due must be made by 31st January and you will have to make payments on account where your tax liability exceeds £1,000.
Partnership accountant FAQs
A partnership is a business run by two people or more which has not been incorporated into a limited company. Partnerships in the UK are governed by s45 of the 1890 Partnership Act.
Although this page primarily covers partnership accounting and taxation, Black and White Accounting also provide services for limited liability partnerships, which have different accounting and tax requirements.
How to Register as a partnership
You may register your partnership online with HMRC by clicking here or by populating form SA401. We can of course do this on your behalf however, if you would prefer. Please contact us today for more assistance here.
You’re obliged to register your partnership by the 5th October within your partnership’s second tax year. Once you are registered with HMRC the partnership will have a ten-digit Unique Tax Reference (UTR) which is used to uniquely identify you to HMRC and make payments to them. Once we have this number, we can register to be your agent with HMRC, which means we can liaise directly with them on your behalf to ensure everything is dealt with quickly and competently.
Partnership and other taxes
Partnerships may be also liable for VAT (if registered) and for capital gains tax on the disposal of business assets.
As with Sole traders, Partnerships must currently register for VAT if their turnover exceeds £85,000 or it is likely to exceed £85,000. There are different VAT schemes available, depending on type of business and level of turnover. Please contact us to discuss this further.
Like sole traders, the partners in a Partnership could benefit from Marriage allowance. Marriage Allowance currently lets you transfer £1,250 of your Personal Allowance to your husband, wife or civil partner, thus reducing your tax by up to £250 per year.
You can benefit from this if:
- You’re married or in a civil partnership;
- Either you or your partner earn below the Personal Allowance (currently £12,500);
- The higher earning partner earns between £12,501 and £50,000, before they receive Marriage Allowance.
Marriage Allowance cannot currently be claimed where you’re living together, but neither married nor in a civil partnership. For information about this or other allowances and reliefs you could benefit from, speak to us today by emailing us on [email protected] or call us on 0800 140 4644.
Partnership accounting software
They say finding your business partner is harder than finding a relationship partner and that’s before we discuss keeping them. Therefore, you don’t want anything to cause tension or disputes between the partners. Accounting software can be key to transparency and help any financial conversations you have to drive your business forward and make the right decisions, based on the right information.
Not only are we Gold partners of Xero, we are also certified partners of QuickBooks and Sage and work with FreeAgent and Wave, to name but a few. We work exactly how you want to work, so whatever software solution you want, we can deliver through set up, training, implementation through to continued support. Please contact us if you would like to learn more about this.
What are the key advantages of a Partnership?
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.
- Potentially more potential to raise finance as dependent on more than one person; and
- Two or more heads can be better than one.
What are the key disadvantages of a Partnership?
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.
- Can be more complex than sole traders to close, especially without a strong Partnership Agreement.
Partnership accountants in Hampshire and Surrey
Our service is based around getting to know our clients, their businesses, and what they define as personal and professional financial success. This knowledge of our clients and the financial and operational aspects of their businesses means that we can not only advice you on how to minimise your tax liabilities but we can also help you reduce your costs, increase your company’s efficiency, and, if you wish, grow your business in the future.
We offer a wide range of Accounts & Tax, Book Keeping & Payroll, Business Planning and Software Training to partnerships in Surrey, Hampshire and surrounding areas. We invite you to contact us to take advantage of a free hour’s consultation where we can understand better who you are and what you want. After our meeting, we’ll send you a bespoke quote listing the services we believe will be of the greatest value to you, together with a fixed monthly price.
To arrange your free consultation, please use the form on this page below, call us free on 0800 140 4644, or email [email protected].