Choosing a Structure for Your New or Growing Business – Partnerships

Partnerships

There are three types of partnerships in the United Kingdom each with its own set of rules and obligations:

• Ordinary Partnership
• Limited Liability Partnership (LLP)
• Limited Partnership (LP)

Partnerships are types of business where a minimum of two or more people own the business.

Common Elements

• Two members are required at all times
• Partnership must be registered with the HMRC and an annual partnership tax return submitted (SA800)
• Submit an annual self-assessment tax return
• Partners are taxed on their share of the profits (as per the partnership agreement)
• Register for VAT if turnover exceeds the threshold set by HMRC

Class 2 National Insurance

Unlike working for an employer where National Insurance is a deducted from your salary via the PAYE scheme, as a Partner you are classed as Self Employed and therefore responsible for your own National Insurance Contributions, the amount due is calculated on submission of your self-assessment tax return.

Ordinary Partnerships

Ordinary partnerships are a relatively easy and simple way for you and one or more people to set up and run a business together, they are basically an extension of the Sole trader business structure.

Key Elements

• Both partners are responsible for managing the business
• A nominated partner is responsible for keeping records and submitting the partnership tax return
• Partners equally liable for all the debts and losses of the business

Limited Liability Partnerships

LLP’s are run in the same way as ordinary partnerships. LLP’s can be set up (incorporated) with two or more members. A member can be a person or a company who is known as a corporate member

As a member you will pay tax on your share of the profits, in the same way as an ordinary business partnership, but you are not personally liable for any debts the business can’t pay.

Key Elements

• A Business Name ending in LLP
• A Registered UK Address (This is visible to the public)
• An LLP Agreement saying how the LLP will be run
• Register the LLP with Companies House
• File Annual Accounts and confirmation statement with Companies House
• A nominated partner is responsible for keeping records and submitting the partnership tax return (SA800)

Limited Partnerships

Unlike an ordinary partnership a limited partnership has two categories of partner: one or more general and one or more limited partners and must be registered with Companies’ House.

A Limited Partner

• Can contribute an amount of money or property to the business when it’s set up
• Is only liable for debts up to the amount they have contributed
• Can’t manage the business
• Can’t remove their original contribution

A General Partner

• Liable for any debts the business can’t pay
• Responsible for controlling and managing the business
• Able to make irreversible (‘binding’) decisions for the business
• Required to act for the business if it’s wound up and dissolved

General Partnership Agreement

A General Partnership Agreement is an agreement between you and your Partner(s) that sets out the duties and obligations of the Partners to each other and to the Partnership.

A partnership agreement sets out clear business expectations that can be used to deal with any changes or misunderstandings that occur during the length of the partnership.

Key Elements

• Who the partners are
• What each partners responsibilities are
• How to leave and join the partnership
• How the profits will be shared

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Partnership Key Documents

Partnership Self Assessment Registration – HMRC (SA400)

LLP Registration – Companies House (LL IN01)

Limited Partnership Registration – HMRC (LP5)

Partnerships – Tax Return 2018 – HMRC (SA800)