Tax matters

The profits are shared amongst the partners. Individual members themselves must pay income tax on these profits, not the partnership.

In most cases the partnership's members will be self-employed, so must include details of any profits they get from the partnership on their individual self-assessment tax returns each year. Self-employed partners are responsible for paying their own National Insurance contributions (NICs). It's important that each member of the partnership should register as self-employed with the Inland Revenue.

It is also possible for partnership members to be companies rather than individuals. If so, they must pay corporation tax on their profits from the partnership, and should include the profits on their self assessment return for corporation tax.  

If the partnership has (or expects to have) turnover of more than £58,000 a year, it will need to charge VAT to its customers and pass this on to Customs and Excise.

Partnerships with employees will need to collect and pay income tax and NICs, which will mean operating a PAYE (Pay As You Earn) system.

What does a new partnership need to do about tax?

Contact your local Inland Revenue office to let them know that the business exists. They'll send a Partnership Tax Return, which must be filled in to show the partnership's income and expenses for the tax year. This includes a Partnership Statement, which shows how profits (or losses) have been divided amongst the partners.

The partnership should appoint one of its members ("nominated" member) to fill in the Partnership Tax Return and send it to the Inland Revenue. They should also ensure that all other members are given copies of the Partnership Statement to help them complete their own personal tax returns.

Although the nominated member has responsibility for the Partnership Tax Return, the partners will have to pay any penalties resulting from it being submitted late or incorrectly.