Running a business with another as a business partnership involves various responsibilities to comply with HMRC. A partnership tax return is one such obligation.
What’s the procedure? How much could you pay? And which resources should you use for accurate partnership tax returns?
We’re going to run through the key pieces of information, so you know exactly how to do a partnership tax return and pay your tax.
What is a partnership tax return?
The Partnership Act 1890 defines this arrangement as two or more people ‘trading in common with a view to profit’.
A partnership tax return, then, is the legal responsibility of declaring the income, or losses, of the partnership. It accounts for the income of the partnership and how this is distributed to the partners.
The partnership itself isn’t taxed. Money passes straight to each of you, and you have to submit a Self Assessment tax return on time, just as if you were self-employed. Your partnership Income Tax return uses an SA800 form to declare these finances and tell HMRC how profit has been split.
Essentially, there are two documents to bear in mind. One partner is nominated to handle the partnership’s tax returns known as SA800 Partnership Tax Return. Then you each complete a Self Assessment tax return (SA100 form) with an additional page SA104 on which the individuals share of the partnership income is declared. This then determines how much tax each partner is liable to.
How are partnerships taxed?
It depends on the share of the profits you’re taking. Since partnerships can be divided in any way you see fit (as per your partnership agreement), everyone will have their own percentage of the income you’re generating together.
Therefore, you’re taxed on the amount of money you’re taking. Individual tax partnership rates and bands correspond to those for any income (basic, higher and additional rate).
Let’s imagine three partners – A, B and C – are dividing a £100,000 annual profit. Partner A has 50%, Partner B has 35%, and the third has a 15% stake. They’d be taxed respectively for £50,000, £35,000 and £15,000, meaning that Partner A at the very least would be on the higher Income Tax rate, compared to the basic rate for partners B and C.
This may, of course, become more complicated if all or some of the partners have other forms of income, tipping their overall earnings into the higher or additional rate bands. Remember that HMRC totals your income from all sources, and minuses deductions and allowances to work out your taxable income.
When should I file a partnership tax return?
The deadline for filing your partnership business tax return is the same as the Self Assessment – midnight on the 31st January for digital submissions, and 31st October three months earlier for paper returns.
This tax return will be for the previous tax year. So, for example, you’d file online in January 2020 for the 2018/19 tax year.
If you miss that submission date, there’s an immediate £100 fine for each member of the partnership. Subsequent penalties accrue just like those for a late Self Assessment tax return. They affect the partners individually – you are not charged as a whole.
Further charges apply for missed payment.
How do I file Income Tax as a partner?
The SA800 has eight pages that every partnership needs to fill out. If you’re the nominated partner, it’s your responsibility.
But there are additional pages that are equally important for your tax partnership. They’re used for income gained through banks or building societies, as well as the ‘disposal of chargeable assets’. The nominated partner needs to complete these supplementary parts of the SA800 form.
As ever, you’ll require the latest, up-to-date evidence for a partnership tax return. HMRC may ask for proof of all earnings and investments.
You’ll be required to give one of two Partnership forms: a ‘short’ version for the sort of income we’ve described above, or a ‘full’ declaration that includes every type of income you may receive from the partnership. You’ll either be filling the SA104S for the short if your trading income is less than £85,000 or page or SA104F in your Self Assessment tax return if the partnership income is over £85,000 or you have more complex partnership affairs.
All members of the partnership sign to give their consent. Then a copy will be made and added to personal Self Assessment tax returns. That, simply, is how to do a partnership tax return correctly.
Deadlines for submitting a partnership Sa800 tax return
Every tax partnership in the UK has to file a tax return by the paper or digital deadline. HMRC automatically sends a fine to those who don’t submit on time.
On the other hand, you can appeal for a reduction or nulled penalty. You have 30 days in which to explain why you were late. Some valid reasons include:
- HMRC’s service was down when you tried to submit, or your own software encountered problems
- Theft, fire or flooding prevented you from sending it
- A serious illness held you or your partners back from completing their part of the tax return
- One of the partners died shortly before the deadline
- Postal delays occurred
- You have a medical disability that made it harder to submit
If any of these apply, and your partnership tax returns were late you may be successful in any appeal against late filing penalties.
How to do a partnership tax return more easily
What is a partnership tax return? By now, we’ve answered that question. But there are still methods you can use to make it more convenient.
GoSimpleTax allow each partner to precisely track their earnings in real-time, complete all the related forms based on the information you provide, and submit your Self Assessment directly to HMRC.
We are one of the few software providers recognised officially by HMRC. To find out more about how we can help you and your partners stay compliant, contact us today.
Last updated on 13th December 2019.