As opposed to a sole trader who works through self-employment by themselves, two or more people may agree to carry out the business and self-employment work together. They could be friends or family, there are no restrictions on whom can form a partnership. The partners share the responsibility of running the business and paying the debts the company owes, and in return the partners share the profits the business makes, and each pay the self-assessment tax on their share. It is ideal to draw up a document to show how much of the profit each partner is entitled to, and to show how much investment each partner has put into the business.When registering a partnership HMRC will ask for a nominated partner. While each partner may have an equal share, the nominated partner will be deemed responsible for the taxes and bookkeeping for the business. The partners will have to choose a name for the partnership; this name cannot be a trade-marked or well-known name, and unless they choose to register the partnership as a limited partnership they cannot use “Ltd” or “LLP” at the end of the name. A partnership must register before the 5th October during its second year of trading; if the trade began between 2018-2019 then the partnership needs to be registered by the 5th October 2019. A partnership will have up to 3 tax returns to be submitted to HMRC by the 31st January each year; a partnership tax return to show the business’ income, expenses and partner’s shares of the profit will be the first one to be prepared. There is no calculation of tax on this return as the profits are shared between the partners and entered on their tax returns. Each partner must prepare a personal tax return submit this to HMRC; this will show their share of the profits from the partnership and any other taxable income they received between 6th April 20X1 to 5th April 20X2. The tax to be paid on the profit shares are calculated within each partner’s personal tax calculations. If the partnership tax return is submitted late then each partner will be issued a £100 late filing penalty. If the personal tax returns are submitted late, a further £100 per late personal tax return will be issued; if there are two partners, each partner will have a £200 late filing penalty to pay.
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