Partnerships are businesses owned and controlled by more than one person.
The Partnership Act 1890, s. 1 defines partnership as ‘the relationship which subsists between persons carrying on business in common with a view to profit’. Jointly owning a profit or carrying out a joint venture project does not necessarily create a partnership.
There is no requirement in law or in tax to have a partnership agreement. However it is strongly recommended that such an agreement is drawn up. Partnership law is particularly old (as illustrated above) and the default position in absence of a partnership agreement can be unexpected and apparently inequitable.
Partnership accounts are simpler than those of a limited company. Accounts similar to those of a sole trader are usually satisfactory, including an income and expenditure account, balance sheet and some limited notes. The partners’ current accounts (share of net assets, profits and drawings) and capital accounts (longer term investments in the partnership) are also shown in the partnership accounts.
The partnership has a tax return but does not have a tax liability. The tax return will shown the profits and adjustments to give taxable profits which is then shared amongst the partners. Each partner must then disclose their share of the taxable profit on their own self assessment tax return.
Although not taxable in its own right, the partnership self assessment tax return must be completed on time (31 January following each tax year for electronically submitted forms). Penalties are charged on the partnership for late submission.
Each partner is taxed as a self employed individual, similarly to a sole trader.
A partnership does not protect the personal assets of the partners from the trade. For protection of personal assets a limited liability partnership or limited company would be used. However a partnership does not have to make any financial information available to the public at Companies House.