If you're in a business partnership, one of the partners must complete the partnership's tax return. This shows how much profit the partnership has made, and how the profits are shared between the partners.
In most cases, partners in a business partnership will be taxed as self-employed, so all partners must also complete their own self assessment tax returns - including the partnership pages - to show their share of partnership profit.
It's your responsibility to return the correct details of income and expenditure. It's easier to do this if you have kept good records which have been kept up to date. You are also responsible for completing accurate tax returns on time and for paying any tax and Class 4 National Insurance contributions you owe.
This guide covers the key points you need to know about income tax self assessment if you are a partner in a partnership.
A partnership is a group of people who are in business together but don't trade as a limited company. A partnership can have both partners and employees. It's usually fairly clear which one you are.
- Partners run the business, making their own business decisions. They risk their own money but are entitled to a share of the partnership's profits.
- Employees usually have set hours - and perhaps overtime - and regular pay packets. If the partnership makes a loss, employees are not liable for it.
Your employment status affects the tax and National Insurance you have to pay, so it's important you know which heading your job falls under.
If you're a partner in a business, you are self-employed. However, it's possible to be self-employed for some of your work, but an employee of another business as well. For example, you might work as a partner during the week but also have a weekend job as an employee of another business.
Every partnership must be registered with HMRC. When you become a partner, you must also notify HMRC that you are self-employed
Partnership profits
If you are a partner, you pay tax and National Insurance contributions on your share of the partnership's profits.
The first step is to add up the total partnership income.
Then deduct all the ordinary business expenses the partnership is allowed to set against tax. For example the cost of supplies, rent on business premises, business travel costs, administrative expenses such as postage, and the cost of any employees the partnership has.
Purchases of equipment and vehicles are treated differently. Instead of deducting the whole cost straight away, the cost is usually spread over several years.
Each individual partner is allocated a share of the partnership's profits. The partners decide how the profits are shared out.
Other income
As well as your profits from the partnership, you will be taxed on any other income. For example:
- any salary or wages you are paid as an employee of another business
- interest and dividends from any savings and investments
- rental income from property
- gains on disposals of assets
Tax rates and allowances
Your partnership profit - plus any other income - is taxable, with tax rates on a sliding scale. However, the amount of tax you have to pay is reduced by any allowances you can claim.
Find tax
rate and allowances on our site.
As a member of a business partnership, you are taxed on your profits, so it's essential to keep accurate records. By law, you must keep business records for at least five years from the 31 January following the tax year for which the tax return is made. A penalty of up to £3,000 can be charged for each failure to maintain or retain adequate records to back up a tax return.
You need to keep your business records and personal records separate. It's a good idea for the partnership to have a separate bank account.
Your basic records will normally include:
- a record of all the partnership's sales, with copies of any invoices you have issued
- a record of all your purchases and expenses
- invoices for all the partnership's purchases and expenses, unless they are for very small amounts
- details of any amounts individual partners personally pay into or take from the business
- copies of the partnership's bank statements
You use these records to work out your partnership's profit.
It is helpful to keep a separate record of purchases and sales of assets that you use in the partnership, such as equipment. These need to be treated differently in your tax return.
