Enterprise - Taxes / NIC

As we are an ordinary partnership consisting of 4 individuals, we do not need to pay corporation tax. We need to pay Class 2 National Insurance and if our annual profits are over a certain amount, we also need to pay Class 4 NIC. HMRC sets up the right tax and NI records for individuals (partners) and the partnership themselves.

Income Tax and Capital Gains Tax 

The profits and gains of the partnership are shared among the partners. Each is personally responsible for paying tax on their share.  The nominated partner needs to register the partnership with HM Revenue & Customs (HMRC).  Each partner also needs to register themselves with HMRC. This helps HMRC set up the right tax and National Insurance records for both the partnership and partners. Every year each individual partner will need to complete a Self Assessment tax return to show the profits they get from the partnership.

The partnership should appoint one of its officers - the nominated partner - to fill in the Self Assessment Partnership Tax Return and send it to HMRC. This includes a Partnership Statement, which shows how profits or losses have been divided among the partners. The nominated partner should also ensure that all other officers are given copies of the Partnership Statement to help them complete their own tax returns. Although the nominated officer has responsibility for the Partnership Tax Return, all the partners are jointly liable for any penalties resulting from it being submitted late or incorrectly.

National Insurance contributions 

As well as being responsible for their tax, individual partners are also responsible for paying their own National Insurance contributions (NICs). Partners normally have to pay Class 2 National Insurance contributions. If their annual profits are over a certain amount they also pay Class 4 contributions.

Corporation Tax 

If partners are companies, they must pay Corporation Tax on their profits from the partnership, and should record the relevant figures on their Corporation Tax return.

VAT 

If the partnership has - or expects to have - turnover of more than £73,000, it will need to charge VAT to its customers and pass this on to HMRC.

PAYE (Pay As You Earn) for employers 

Partnerships with employees will need to collect and pay income tax and NICs, which will mean operating a PAYE (Pay As You Earn) system.

Source: businesslink.gov.uk


Checklist

In order to set up business as a partnership there are certain things you need to do - some must be done as a group and others as individual partners. You should:

- Display all the partners' names at all your business premises together with the address to which official documents should be sent.
- Display all the partners' names on your business website and stationery, including letters, invoices, receipts and cheques along with your principal place of business.
- If the partnership has more than 20 partners you need only display your principal place of business.
- Register the partnership, and each partner, for Self Assessment with HM Revenue & Customs (HMRC).
- Contact HMRC to register your partnership for VAT if you expect a turnover of more than £73,000 a year.
- Register with HMRC for PAYE (Pay As You Earn) if the partnership employs staff.
- Register with HMRC for the Construction Industry Scheme if the partnership is a contractor or sub-contractor.