I’m In A Partnership, How Do I Pay My Tax?

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 individual’s share of the partnership income is declared. This then determines how much tax each partner is liable to.

HOW ARE PARTNERSHIPS TAXED?

Partnerships aren’t actually taxed. All income received by the partnership must be shared between the partners. The partners are then taxed on the share of the profits they’re allocated.

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.

An individual’s share of partnership profits is taxed at the normal tax rates and bands that correspond to those for self-employed 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 60%, Partner B has 25%, and the third has a 15% stake. They’d be taxed respectively for £60,000, £25,000 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.

Don’t forget that the first period you must report is your start date to 5th April, so make sure you don’t miss the first submission.

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 version if your trading income is less than £90,000, or the SA104F if the partnership income is over £90,000 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? Hopefully, we’ve now answered that question for you. But there are still methods you can use to make it more convenient.

GoSimpleTax allows 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 tax return 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.

Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.