Entering into a partnership with another person, multiple people or with a limited company, means that you share profits and debts. In order to enter into a legal partnership, there are number of ways it can be setup. A simple ordinary business partnership can be set up and registered with HM Revenue and Customs. Limited Liability Partnerships can be registered with companies house and treated as like limited companies. We can help you and your partner/partners every step of the way, ensuring that you understand the shared tax return process.
COMPLAXITIES OF PARTENERSHIP TAX
The calculation of taxable profits can be quite complex when it comes to partnerships. Deductions must be claimed in terms of expenses before the share of the profits is allocated between partners, with the tax for each tax year being based on the 12 months of profits.
Class 4 NIC and income tax become due on 31st January and 31st July in any year, with the payments being based on half of the partnership’s total liability. Late payments have a surcharge and fees levied. Partners are subject to a 2 tier NI system with Class 2 contributions being required as well as class 4 contributions on all profits over the threshold. Any failure to register a liability for class 2 NI contributions will result in a penalty.
FORECAST FOR TAX PAYMENTS
Many partnerships fail to make adequate provision for funds to pay their Class 4 NI and income tax, and as interest on any unpaid tax is chargeable by HMRC, it is important to make sure that payments are made in full and on time. The difficulties associated with submitting a partnership tax return can be reduced by using a skilled accountant who can use their professional experience and knowledge to ensure the correct information is submitted.
We always advice clients of the best structure to suit their business plan and operations. This will enable them to forecast tax payments in their business plan.
One important thing to remember about a partnership is that each member is also responsible for their partner’s business and personal debts; not just their own. This doesn’t apply if an LLP is in use. You would need specialist advice to setup a partnership business. We can help you