Table of contents
Table of contents
Registering a business partnership for tax is a fairly straightforward online process, but like any business structure it comes with its pros and cons. We’ll look at what to consider before starting a business partnership, and how to complete the registration process.
Embarking on a new business venture is exciting, especially if you’ve decided to start with a friend or a group of others. While this process can feel extremely overwhelming at times, you’ll never be in it alone! Your first major business decision will be choosing which business structure to go for.
If you don’t fancy setting up a limited company (yet), a business partnership may be an appealing choice. This is down to the fact it’s quick, simple, and easy to set up.
A business partnership is where one or more people run a business and share equal responsibility for it and its profits. Your business partner can be another person, another partnership, or even a limited company because they’re classed as a ‘legal entity’.
Everything in your business is shared, with all members having ‘unlimited liability.’ This means all partners are personally liable for things like the company’s taxation or any debt incurred.
Think of it like a sole trader business where the person and the business are seen as one entity.
In a partnership, the partners are the business – so if someone leaves then there’s no business. The partnership will be dissolved upon the resignation of one of the partners unless you have a written agreement in place.
While a business partnership is easy to register, unlimited liability can be worrying if things were to go wrong. If this is a concern to you or any of your partners, you might consider forming a limited liability partnership instead.
A limited liability partnership, also known as an LLP, is similar to a business partnership, but how ‘liable’ the partners are will depend on the amount they’ve invested in the business. This is because the partners are separate to the business, unlike in a regular partnership where there isn’t any legal distinction between them.
‘Limited’ liability is ideal in high-risk industries such as accounting, construction, and law. Remember though, an LLP must register with Companies House – so it might not be as simple to get started.
The premise of partners coming together and using their strengths and skills to run a successful business is likely to be at the heart of both business structures.
But while partners of a business partnership are the business, partners of an LLP are not.
This means the partners of a business partnership have ‘unlimited’ liability when it comes to any debt incurred by the business, while partners in an LLP are ‘limited’ by how much they’ve invested.
It’s easier to sign up as a business partnership (and a lot more private), because you don’t need to register with Companies House, unlike a limited liability partnership. So, if you’re in an LLP, there are some documents that competitors, clients, and the general public can access. It isn’t all doom and gloom for LLP’s though, as they’re more likely to attract investors and clients than a typical business partnership.
Both businesses can have another person, partnership, or limited company as their partner, and both run the risk of dissolving if a member leaves. Always speak to an accountant to understand the differences between the two, so you can decide what works best for your partnership.
Setting up a business partnership is super simple! Here are the steps you need to follow:
Visit the Gov website to find more information about setting up an LLP.
Going into a business partnership means responsibilities are split evenly so it’s a team effort, but you will need to decide which one of you is the ‘nominated partner’.
The ‘nominated partner’ basically makes sure everything runs smoothly. They do this by managing tax returns, keeping accurate records, and making sure the partnership is following all necessary rules and regulations.
A limited liability partnership is slightly different, and the way responsibilities are shared is up to its members – not everything is 100% equal. However, you’d need to appoint two ‘designated members’, similar to a ‘nominated partner’, who look after filing account information and tax.
When it comes to partnerships, taxes are paid by individual partners and not by the partnership itself, although the partnership must still submit a tax return.
The nominated partner will file an SA800 Partnership Tax Return.
This tells HMRC how much the partnership made, and how the profits were split between the partners. You’re basically keeping HMRC in the loop, but the partnership won’t need to pay any taxes itself.
Any profits are distributed to the partners depending on the agreement they have. It’s then down to the partners to submit the right tax return for their business structure, and include their share of the partnership’s profits on it.
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