A partnership is really just like a number of self-employed people operating together. The business is a separate entity to the people involved, and has its own partnership tax return to complete each year.
It is important to contact the Tax authorities early on and to tell them about the partnership and all the partners involved. You need to register as self-employed and consider how to pay the Class 2 National Insurance contributions. There is a lot of help on the HMRC website, or of course you can ring Astons Accountants if you want to talk this through in more detail.
It is one of the simplest forms of businesses to learn about and to finance. There are less restrictions on how the business is run and how money is withdrawn than there are with an LLP or a limited company.
The business generates income (sales), pays out expenses (costs) and the excess of income over expenditure is the profit. The profit is shared between the partners and each partner declares their share on their own personal tax return.
What To Think About
The main things to think about are:
- Preparing an agreement to govern how the partnership will be run and how profits will be shared.
- Keeping on the right side of the Taxman.
- Maintaining proper accounting records.
- Any need for, or benefit from, registering for VAT.
- Expenses that can be claimed.
A partnership is generally more tax-efficient than two self-employed individuals, but not as tax-efficient as a limited company.
Partnerships do not have to have an equal split between the two, three, four partners involved. The profit-share arrangement is something they must agree between themselves. It is often wise to have an agreement drawn up so that everyone knows what they are entitled to both when the business is going well and when something unforeseen (such as the death of a partner) comes up.
There is another form of partnership which is a Limited Liability Partnership (LLP) which must file accounts with Companies House. An LLP offers similar protection to the partners as with a Limited Company.
If you want to know more or talk about your specific situation, call us and we will talk it through with you.