Croydon Accountants Tax Soft
In a partnership, two or more people share the risks, costs and responsibilities of being in business. Each partner is self-employed and takes a share of the profits. Usually, each partner shares in the decision-making and is personally responsible for any debts that the business runs up.
Unlike a limited company, a partnership has no legal existence distinct from the partners themselves. If one of the partners resigns, dies or goes bankrupt then the partnership must be dissolved – although the business can still continue.
A partnership is a relatively simple and flexible way for two or more people to own and run a business together. However, partners do not enjoy any protection if the business fails.
Each partner needs to register as self-employed – see self-employment.
It’s a good idea to draw up a written agreement between the partners. For further advice consult a solicitor.
Records and accounts
The partnership itself and each individual partner must make annual self-assessment returns to HM Revenue & Customs (HMRC). The partnership must keep records showing business income and expenses.
Each partner takes a share of the profits
Tax and National Insurance
As partners are self-employed, they are taxed on their share of the profits. Each partner also needs to pay Class 2 and 4 National Insurance Contributions.
The business will also have to pay VAT if it reaches the registration threshold. The 2010/11 threshold is L69,000.
Creditors can claim a partner’s personal assets to pay off any debts – even those debts caused by other partners. In England, Wales and Northern Ireland, partners are jointly liable for debts owed by the partnership and so are equally responsible for paying off the whole debt but they are not severally liable which would mean each partner is responsible for paying off the entire debt.
However if a partner leaves the partnership the remaining partners may be liable for the entire debt of the partnership. Also a creditor may choose to pursue any of the partners for the full debt owed in the case of insolvency.
Partners in Scotland are both jointly and severally liable.