In the same spirit as our previous posts about registering as a sole trader or as a private limited company, here we’ll explore the characteristics of the business partnership status. We’ve tried to sum up everything you need to know before registering a business partnership: the information you need in order to register for taxation processes and tax rates ! As always, we hope you find it useful.
Setting up a business partnership
In the same vein as a sole trader, an ‘ordinary’ business partnership is one of the easiest way to set up and manage a small business if you want to associate with other people to do so. It involves fewer records to manage and sort than other existing types of partnerships (limited liability partnerships & limited partnerships) which boils down to starting a limited company, with all the paperwork and accounting that involves.
To keep it simple, it is a good solution if you and one or more people want to get a small business off the ground. Plus, if it really grows, you’ll always be able to turn your business partnership into a limited company or whatever business structure suits your business best.
How to register a business partnership?
You are to register your partnership with HM Revenue and Customs. All the members of the partnership must be registered. Note that a partner does not necessarily have to be an actual person. It could as well be a limited company or anything classed as a ‘legal person’.
So, every member of the partnership has to be individually registered for Self Assessment. Also, the partnership itself has to be registered. This formality has to be done by the ‘nominated partner’. The nominated partner takes care of tax returns and business records. If you don’t choose one, HMRC will pick one randomly.
It means that if you are the nominated partner of the partnership you are creating, you’ll need to make two registrations:
- yourself, as a member of the partnership
- the partnership itself
Registering a partner or a partnership can be done online. The online service is the same for partners and partnerships, here is a link!
You can also register by post if you can’t do this online. To register a partnership, use form SA400. To register a partner, use form SA401.
What informations do I need to register a business partnership?
Partnership Agreement
First of all, bear in mind that a partnership involves several people and that each one of them has a personal life that may include unforeseen events. Even if you trust them, even if you are building this business with your best friend, you should prevent these risks by establishing a Partnership Agreement.
So when you’ll be designing free business plan templates with your future business partner, raise the issues and don’t fear debate : it is better to talk all of this through at the beginning than to wait for a problem to occur!
Here is a little checklist of the items to be addressed when writing down a Partnership Agreement:
- Contributions to the partnership and percentage of ownership
- Allocation of profits and losses
- Decision-making process
- Authority of each partner
- Principal duties of each partner
- Admission procedures for new partners
- Departure procedures for existing partners
Name of your partnership
If you want to trade under a name other than your own, which you are not obliged to do, there are some rules you need to be aware of when choosing your name.
- Your name can’t contain any of the following terms : ‘limited’, ‘Ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’
- Your name must not be offensive
- Your name can’t be the same as an existing trade mark. Here is a link where you can search for trademark. Be careful, you can use a name without registering it as a trademark, but if someone else decides to register the same name as a trademark, you will loose your permission to use it.
- Your name can’t contain a word or expression that suggest a connection with government or local authorities if you didn’t get permission to use it. Check out what sensitive words or expressions require approval.
Once you’ve chosen your business name, you must include it in all official paperwork, for example invoices and letters!
Informations needed to register the partnership
- Name of the partnership
- Trading name of the partnership (if you decide to use one)
- Address of the partnership
- Trading address of the partnership (if different from the address of the partnership)
- Type of work you’ll be doing
- Date you started doing business (it can be past, present or future)
- Type of partnership
- Partnership accounting date
- Name of nominated partner
- Correspondence address of nominated partner
- Unique Taxpayer Reference of nominated partner (if he/she is already registered for Self Assessment)
Informations needed to register a partner
Personal informations
- Full name
- Date of birth
- National Insurance Number (NINO)
- Full address (postcode included)
- Phone number
- Whether you’re a UK resident or have moved to the UK in the last 12 months
- Unique Taxpayer Reference (if you have previously registered for Self Assessment)
- If you are the nominated partner for the partnership you are joining
- Date you started working for yourself (it can be past, present or future)
Partnership informations
- Name of partnership
- Address of partnership
- Type of work done by the partnership
- Date you joined the partnership (it can be past, present or future)
- Unique Taxpayer Reference (UTR) of the partnership if it has already been allocated
Lastly you will have 2 boxes that you must tick if they apply to your case or leave blank if not. Here are these boxes
- If you are entitled to a share of the profits, losses and other income from the
partnership. - If the partnership is engaged in sharefishing
What are my obligations as the nominated partner of a business partnership?
In a partnership, partners are taxed individually on their share of profits as if each of them were considered self-employed. As you are not employed by a firm, your tax and NIC (National Insurance Contributions) won’t be deducted at source on your earnings. Instead, you will receive a bill and have a deadline to pay it to HMRC.
As you may guess, the bill is a percentage of what you earned, its proportional rate, so the more you earn, the more you’ll pay. We are going to give you all the informations we have about deadlines and tax rates, but you should also anticipate, and keep your records up to date. This starts early, when choosing the structure that best suits your business (we wrote an article to help you do that) and establishing your financial plan (we created a free financial plan template for you to download an fill in)!
First, you must keep record of your business sales and expenses. It is not going to be a lot of work at the beginning, but be careful if your business starts to grow ! Plus, if you’re not careful, filling in your tax return is going to become a lot more complicated. The UK government issued a handful guide to help you establish your business records that we encourage you to follow.
Second, each partner will automatically be sent a self assessment notice by the end of each tax year to fill in their Self Assessment Tax returns.
On top of that, the nominated partner has to fill in a Partnership Tax Return and the following information must be included therein:
- The profit and loss account
- Any adjustments
- Each partner’s share of the profits
The partnership tax returns helps HMRC verify that each partner’s Self Assessment return jibes with reality; remember that the partnership that is taxed but each partners on their individual shares of the profits!
A tax year starts on the 6th April and ends on the 5th April every year. You can fill in and submit the two forms online. It is encouraged by HMRC and it is the safest and most sure way to do it. Plus, filling in your declarations online gives you three extra months to complete it (a paper tax has to be returned by the 31st October, an online tax can be submitted until 31st January).
After you’ve sent your Self Assessment tax return, HMRC will notify each partner how much Income tax, Class 2, and Class 4 National Insurance they have to pay, it’s really simple ! Below are the tax rates for Income tax and NICs if you want to do a little math in order to know how much each of you will owe HMRC.
| Income amount | Tax rate |
| <£11.500 | 0% |
| £11.500 > £45.000 | 20% |
| £45.001>£150.000 | 40% |
| >£150.000 | 45% |
Tax rates for year 2017/18 (Source)
| Earnings | Class 2 NICs |
| All | £2.85/week |
| Earnings | Class 4 NICs |
| £8.164>£45.000 | 9% of your earnings |
| >£45.000 | 2% of all profits |
Rates for class 2 and 4 NICs (Source)
After you’ve done the tax payment for your first year (basically your first tax payment), you are going to start ‘payments on account’.
Payments on account are based on your due tax from the previous tax year, separated in two remittances : the first one on January 31st, the second on July 31st. In other words, you can estimate how much your payments on account are going to be by dividing by two the amount you have to pay for the previous year.
Beware : for your first year of activity, your first payment on account is due on the same date than the tax from your self assessment (January 31st) ! Be well aware of that, and make sure you have enough money to pay the required amount before the deadline, otherwise you’ll be fined by HMRC.
Last but not least : if your profits exceed £85.000, you must register for VAT. You can register for it even if you make less than that, so if you think you may make more than this amount, it may be better to register just to be sure.
You’ve reached the end of our guidance on partnerships ! With this information, combined with meticulous work on your business plan, and a close follow-up on your partnership’s records, you’ll have all the cards you need to anticipate your tax and other inherent expenses ! If you have questions, feel free to ask them in the comments or visit our other publications about Starting Up in the UK!