When you are a partnership you and the other partners can share the responsibility for the business debt, this spreads the debt between all partners so that it is not just you liable for it all.
As a partnership you also won’t have as much regulation as a limited company has, this will make it more flexible and easier to run your business the way you would like to.
As a partnership you will also have the advantage of being able to claim car and travel expenses such as mileage or vehicle fuel and repairs on your personal car, providing you have been using your car for business use.
You and your partner will be able to operate your business the way you had planned. This will give you more freedom and flexibility in your work life than what you would get if you were employed by someone else.
You can choose when you work, who does what and how you do the job.
If you would like to become a partnership all you need to do is let us know and supply us with some personal details and we will then register you as a partnership.
You may wish to choose a trading name for your partnership but the name must not include the following; LLP, PLC, public limited company, limited, limited liability partnership or Ltd and it can’t be the same as a trade mark which exists already.
Once we register you will receive a personal UTR in the mail from HMRC. When you receive this you should forward it on to us because this UTR will be required when your return is ready to be submitted to HMRC.
When you are a partner in a partnership you have responsibilities you must keep. You and other partners are jointly responsible for keeping record of your business finances, submitting your partnership return when it is due and paying your taxes. As well as submitting a partnership return all partners will be required to submit a personal tax return.
You should also decide what partner is going to be the ‘nominated partner’. The ‘nominated partner’ will be responsible for making sure the partnerships tax return is submitted to HMRC each year.
It might be an idea for you to create a partnership agreement when you become a partnership. You should include such things as how you plan to finance the business, if one or more of the partners want to dissolve the partnership what happens, who does what work and if someone dies what is the process. By having this in place it will help the situation when it occurs.
You may also want to consider having a business prenup drawn up to protect your business. You may need this when one partner wants to leave, or wants to retire. This will help to ensure that they don’t leave the partnership to go and start their own business and take your existing clients with them.
The way you will be taxed as a partnership is similar to the way a sole trader is taxed.
Each partner is taxed through their personal tax return, how much tax you pay depends on what your share of the profits are.
You will be required to submit a partnership tax return which will outline the profit made from the partnership for that tax year and the distribution of profits to go to each partner.
Each partner is then required to submit their personal tax return detailing the profits they received from the partnership.
A partnership is straightforward to set up and therefore it is a relatively quick process.
You can have peace of mind once your partnership is set up as you know everything is in place and don’t need to worry about anything.
Since there will be more than one person contributing to the funds of the business it is likely that it will be easier to raise funds between them all.
Someone may have a really good credit rating which allows them to borrow more and this can make up for someone who doesn’t have as good a credit rating and therefore can’t borrow as much.
When you have more than one person running the business you can bounce ideas of one another.
This can help you come up with an even better idea than if you were to come up with it yourself as sometimes two heads are better than one. Often bouncing ideas off one another can result in a really good idea coming to light.
One person might have certain skills that the other doesn’t and therefore you can each focus on what you are good at.
This can make the business better because you have people focusing on an area they are particularly good at rather than one person trying to do it all when they might not be particularly good at a certain aspect of the business.
The more people you have the wider knowledge you have in the business.
This can make having a partnership more cost effective as you don’t need to pay anyone to help you out in areas that you are not too good at as you have other partners whose strengths are your weakness and therefore you can all play to your advantage.
Having another person involved in the business can be an advantage when it comes to problems as you can offer support to one another and help each other through the process.
If a problem is bothering you there is someone you can talk to about it and between you discuss what the options are to come up with the best solution for the business.
Unfortunately, when you are a partner in a partnership you and any other partners share the liability for any business debts which have not been paid, for example, if one person has 40 percent of the business then they will be liable for 40 percent of any debts which occur.
However, if a partner is unable to pay their share of the debts then you are likely to be asked to pay their share for them even if you will need to sell your personal possessions in order to do this.
Profits will also have to be shared out among partners depending on what share they have in the business.
This can be annoying if you feel that you have worked harder or done most of the work but you are getting less profit because you have a smaller share in the business than your other partner does.
It is likely that you are going to have disagreements at some point or other as you will each have different ideas, opinions and expectations and so you will have to compromise to find a solution which suits you all.
This will be the same for making decisions it is likely that you will each have different decisions and therefore you will have to be flexible and be willing to not always get your way.
You will be taxed based on all profits made by the business in the same year they were made, you don’t have the advantage of keeping some money in the business as a Ltd company does.
As you can see from what has been outlined there are a lot of good points surrounding becoming a partnership.
It is the ideal solution if you are looking to become self-employed but are reluctant to do it on your own and you don’t want to have your own company.
It allows you to have your own business as well as giving you the stability of having someone by your side through it all.
It is easy to set up your partnership and you can start trading straight away. You have the flexibility of choosing when you work and what work you do providing you and your partners can agree on this.
You have also seen that starting a partnership can be risky with the element of unlimited liability for each partner as well as the threat of disagreements and arguments among partners. However, if you feel you are ready to take on this challenge then the rewards can be great.
If you feel that becoming a partnership if the right thing for you then we can register you as a partnership on your behalf and then from there, the rest is up to you.
You are in control of your own future and you can start turning your fantasy into reality.
In the first instance, we recommend you and your prospective business partner sit down and talk things through. Discuss who is doing what.
Once you have established who is doing what, please do consider getting a legal document drawn up to confirm this, it will solve many problems later on.
Lastly, make sure to register the partnership with HMRC as well as regsiter yourselves as partners of it.
Every partner has the right to take part in the management of the partnership business. This is subject thought to what was agreed in writing in the partnership agreement.
As a partnership, as far as the tax man goes you need to keep adequate records from which a tax return can be produced. We can help you do this.
Each partner is responsible for submitting their own tax return and paying thier own national insurance contributions. Both partners thought bear a liability to ensure that the partnership tax return is filed, unless one of you is the nominated partner.
In the abscence of a partnership agreement, it is assumed that all partners have equal rights in making decisions and at the same time all partners share equal obligations.
At the beginning of any business partnership, the partners usually envision a long-term relationship, this is clear because they all invest time and money in getting the venture started. In reality, very few partnerships succeed beyond 12 months. This is often due to expectations not being met or personal issues arising. Hint: This is why wwe always insist you get your partnership agreement in palce so that you are protected legally.
If you wish to leave the partnership you must end things amicably with the other partner and ensure your share of liabilities to the point of leaving are met. Then, on your tax return you must inform HMRC of the date of cessation. However, it is possible there may be some financial gain in you leaving the partnership. This could be by way of the other partner(s) buying you out. If the company is making money this should not be a problem, however if the company is struggling, realisitically a buy-out is not viable.
To ensure that no obligations exist upon you on leaving the partnership, we highly insist that you consult a lawyer, you may just thank us for this advice!
In the abscence of any official agreement it is assumed that all partners have an equal stake in the partnership. However, there can be situations when you wish to alter this. A classic example is when one person is the "leading light" and the other partners are merely "ancillaries" to the venture.
In such circumstances you may wish to alter the shareholding so that one partner has a greater % share and the other partner a lesser share.
The decision really is between the partners to decide what best fits the requirements of the venture.
Partners are entitled to a share of the partnerships profits in proportion to their stake int he shareholding. i.e a person having a 40% stake in a partnership is entitled to 40% of its net profits.
Generally speaking you would not change a partnership shareholding year on year. There is however no legal requirement around this. The % shareholding should be agreed in advance before any calendar period so that each person is aware of what effort they need to make and what the reward shall be.
It has to be remembered that unless agreed otherwise, the assets belong to the partnership and not the partners. If the asset was aquired by the partnership it is assumed the partnership owns it wholly (and not the partners in varying percentages).
Thus, when a partnership asset needs to be disposed of, the proceeds should go into the partnership and from there be distributed to the partners.
There are many advantages to trading as a partnership.
It may be that between you the necessary funds can be raised, the skill levels are adequate to ensure the viablity of the venture and that you can appraise risks together and arrive at solutions together.
Partnerships are like any relationship, they thrive on the skills of the participants but can die on the lack of necssary skill and input as well. All in all a partnership may be a good decision if there is a good match of skills and financial input form both sides.
There are many upsides to a partnership. But, there are also downsides, some of them very serious.
Disadvantages of a partnership include that: the liability of the partners for the debts of the business is unlimited. each partner is 'jointly and severally' liable for the partnership's debts; that is, each partner is liable for their share of the partnership debts as well as being liable for all the debts.
Further, if misconduct, fraud or worse occurs the partnership itself could become liable and as a consequence all the partners. In laymans terms this means you could become liable for the bad conduct of another.
Another danger is dis-agreements between partners resulting in the bad running of the venture. Worse still is when one partner perceives that the other is not putting in their required amount of time and effort.
We urge all potential partners to think long and hard about what they are committing to and to seek legal advice as well putting in place a formal parnership agreement.
A partnership, as well as the individual partners making up the partnership each have resepective tax registrations. This means that a minimum of 3 tax returns are required for each partnership (i.e one for the partnerships and 1 for each of the partners.)
The partnership itself does not pay tax or national insurance (although it may pay vat if so registered for vat).
First of all the accounts of the partnership are drawn up detailing all incomes and expenses so that a net profit is arrived at. Capital allowances are then calculated and as a result a taxable net profit is arrived at.
Each partners share of this net profit is then calculated. The split of the net profit is recorded inthe partnership tax return as well as in each partners tax return.
So each partner is effectively taxed as if he were a self employed business, with profits equal to his share of the profits of the firm.
A limited liability partnership (LLP) is a partnership in which some or all partners have limited liabilities. It therefore exhibits elements of both partnerships and corporations. In an LLP, one partner is not responsible or liable for another partner's misconduct or negligence.
An LLP is of particular interest to lawyers, accountants, engineers and other professional groups involved in technical, legal or complex work where clients can end up sueing.
In contrast, in an ordinary partnership any liability for misconduct or wrongdoing is upon the partnerrship. This can include tax avoidance activites. Therefore, partners of traditional partnerships need to think very clearly about what they are gettting into.