Are you in a business partnership or considering entering one? You might be wondering how your taxes and their returns work in this case. It is different compared to if you’re running a business and earning income yourself, and it might seem like a lot to take in, but once you have the information, it’s really not too difficult to understand.
Partnership tax returns in the UK have their own rules and regulations, as well as a unique form you’ll have to fill out. We want you to have all the information you could possibly need about this topic, which is why we’ve put together the ultimate partnership tax return guide to help you out for the next tax year.
Let’s get started.
Understanding partnership tax returns
In the UK, partnerships file annual tax returns collectively, consolidating each partner’s profit or loss share. Using Form SA800, these returns outline financial details such as income, expenses, and other pertinent information. Partners receive individual statements summarising their portion of the partnership’s financials, which they report on their personal tax returns via Self Assessment.
Unlike corporations, partnerships themselves don’t incur taxes; instead, partners assume responsibility for their share of profits or losses, taxed according to their personal income tax rates. The return provides a comprehensive breakdown of income sources, allowable expenses, and applicable allowances. Maintaining precise records is pivotal to ensuring accurate partnership tax filings. Seeking assistance from a qualified accountant or tax professional well-versed in UK tax regulations is highly recommended to ensure compliance and accurate submissions.
How do I complete a partnership tax return?
When you know what to do, filling out a partnership tax return isn’t too hard. You just need to fill out each of these boxes:
| Box to fill out | What to do |
| Name of business – Boxes 3.1 and 3.2 | Enter the business name and describe the partnership’s trade or profession (e.g., hairdressing). |
| Accounting period – Boxes 3.4 and 3.5 | Specify the start and end dates of the accounting period. For instance, a year ending on 31 March 2022 starts on 1 April 2021 and ends on 31 March 2022. |
| Boxes 3.7 and 3.8 | Complete these only if the partnership commenced after 5 April 2015 or ceased before 6 April 2016, respectively. |
| Capital allowances – Boxes 3.13A to 3.23 | Enter any claimed capital allowances here. Consider professional help for complex areas like this. |
| Capital allowances – Boxes 3.24 to 3.25 | Applicable if partnership turnover was under £85,000. |
| Box 3.83 | Typically mirrors Box 3.26. |
| Partnership information (Boxes 1 – 5, A – 11) | Details transfer from previous boxes. Mixed partnerships involve complex rules, consult an accountant for Boxes 4 and 5. |
| Individual partner details (Boxes 6 – 10, Profit Box 11) | Each partner should provide their individual details and profit share. |
Types of partnerships
There are two main types of partnerships you can consider in your tax return:
Ordinary partnerships
An ordinary partnership involves multiple individuals or entities coming together to operate a business aimed at profit. Within this setup, partners divide responsibilities, earnings, and liabilities as per their agreed-upon terms. Notably, each partner carries personal responsibility for the partnership’s debts and obligations.
Consequently, their personal assets could be vulnerable in case the partnership encounters legal or financial challenges. It’s important to note that this partnership type doesn’t provide limited liability protection for its partners.
Limited Liability Partnership (LLP)
A Limited Liability Partnership (LLP) stands as its own legal entity, providing partners with limited liability protection and safeguarding their personal assets from the debts and liabilities of the partnership. LLPs merge aspects of partnerships and limited companies, granting partners protection akin to that of shareholders in a limited company.
Partners within an LLP bear no personal liability for the partnership’s debts beyond their agreed investment or capital contribution. Professional service providers like lawyers, accountants, and consultants often prefer LLPs due to the shield they offer against liabilities while retaining a flexible and collaborative business structure.
How are profits from a partnership taxed?
In the UK, partnership profits aren’t taxed at the partnership level. Instead, partners are individually responsible for reporting their share of profits on their personal tax returns through the Self Assessment system.
The partnership itself doesn’t pay tax on its profits. Instead, it calculates the overall profit, along with each partner’s share, and provides this information to each partner via a partnership statement or a “Statement of Total Partnership Income.”
Each partner includes their allocated share of the partnership’s profits or losses on their personal tax return. They receive a ‘Partnership Statement’ showing their individual share of the profits, which they then report on their tax return (Self Assessment). Partners are taxed at their respective income tax rates based on their share of the partnership’s profits.
It’s important to note that partners also need to consider other forms of income they might have in addition to their partnership income when calculating their overall tax liability. Consulting with an accountant or tax advisor familiar with UK tax laws, like those at Reed & Co Accountants, can be beneficial for accurate reporting and compliance.
Partnerships and VAT
Partnerships in the UK operate separately for VAT purposes. If a partnership’s taxable supplies surpass the set VAT registration threshold, it can register for VAT with HM Revenue & Customs (HMRC). Upon registration, the partnership receives a unique VAT number and is required to levy VAT on its taxable supplies, both to businesses and consumers, unless they are VAT registered.
Registered partnerships can reclaim VAT paid on eligible business expenses, referred to as input tax, as long as these expenses relate to the partnership’s VAT-taxable activities. Detailed records of VAT transactions must be maintained, and regular VAT returns need to be submitted to HMRC. These returns outline the partnership’s output tax (VAT charged on sales) and input tax (VAT paid on purchases).
VAT returns are usually submitted quarterly or annually, based on the partnership’s turnover and chosen VAT scheme. It’s crucial to adhere to VAT obligations accurately and punctually to avoid penalties. Seeking guidance from a VAT-specialised tax advisor or accountant can assist partnerships in navigating VAT regulations effectively and ensuring compliance.
Partnership tax return deadlines
In the UK, partnership tax return deadlines depend on the nature of the partnership and its financial year-end:
- Paper filing deadline: For partnerships filing their tax returns on paper, the deadline is usually October 31st, following the end of the tax year.
- Online filing deadline: Partnerships filing online typically have until January 31st of the year after the end of the tax year to submit their tax returns.
It’s important to note that penalties may apply for late filing or payment, so meeting these deadlines is crucial. Additionally, the deadlines might vary if there are changes in the partnership, and seeking advice from a tax professional can help ensure accurate and timely filing.
Do I need a partnership tax return accountant?
Deciding whether you need a partnership tax return accountant depends on various factors. Partnerships have specific tax requirements, and an accountant with expertise in partnership taxation can be highly beneficial. Here are some factors to consider:
- Complexity of the partnership: If your partnership has complex financial structures, multiple owners, investments, or assets, it might be wise to seek professional help.
- Tax law changes: Tax laws change frequently. An accountant stays updated with these changes and can help ensure compliance, potentially saving you from penalties or missed deductions.
- Time and expertise: Consider your own expertise and the time you can dedicate to understanding and managing tax obligations. Handling partnership taxes can be time-consuming and may require specialised knowledge.
- Tax planning: An accountant can provide advice on tax planning strategies to minimise tax liabilities and maximise benefits for the partnership and its partners.
- Accuracy and compliance: Mistakes on partnership tax returns can lead to fines or audits. An accountant can help ensure accuracy and compliance with tax laws.
- Financial analysis: Accountants can offer insights beyond tax preparation, providing financial analysis and recommendations to improve the partnership’s financial health.
- Legal structure changes: If you’re considering changes in the partnership’s legal structure, an accountant can offer guidance on tax implications.
Partnering with Reed & Co Accountants for your partnership tax needs ensures expert guidance through the intricacies of tax regulations. Our specialised team navigates HMRC requirements, ensuring accurate and timely filings while maximising deductions and minimising liabilities. Avoid penalties and streamline your tax process by partnering with Reed & Co Accountants.
With tailored solutions and proactive support, we take the stress out of tax returns, allowing you to focus on your partnership’s growth. Reach out to Reed & Co Accountants today for comprehensive tax expertise tailored to your partnership’s needs.
