A partnership is an organization with more than one person jointly running a business. Partnership is a very popular form of business structure for many professionals, solicitors, barristers, legal advisers, consultants, accountants, architects and engineers in the UK.
How a partner is taxed in a partnership?
Each partner is taxed individually just like as if he/she is a sole trader. In other words partners are taxed as if they were running their own self employed business. Under the partnership tax rules, each partner is responsible for his or her own tax bill. Partners must include share of partnership profits or losses in their self assessment tax calculations and tax returns.
In addition to income taxes, partners must also pay class 2 and class 4 national insurance contributions to HM Revenue and Customs.
Salaried partners are normally taxed under the employee scheme called Pay As You Earn (PAYE) scheme and are not required to submit self assessment tax return if they have no other income except their salaries. It is the partnership responsibility to deduct the salaried partners' income taxes and national insurance contributions and pay its over to HM Revenue and Customs.
What is the different between ordinary partnership and LLP?
Limited Liability Partnership (LLP) is a legal body corporate by its own just like a limited company. The main benefit of trading as LLP are that partners are not personally liable for their business debt provided they are not negligent. Partners' personal liability are limited to the amounts of capital contributed to the LLP. Partners' personal assets are safe if the business fails in this respect. This is contrary to normal partnership rules.
There are formal compliance requirement in forming a limited liability partnership. The incorporation of a LLP must be with the Registrar of Companies and generally LLP is governed by the Limited Liability Partnership Act 2000. Normal partnership is not governed by the LLP law.
For income tax purposes, partners in a LLP will be taxed as if they are in an ordinary partnership.
Concise Accountancy offers tax filing services to LLP and normal partnerships. Feel free to contact our London Accountants to discuss your business accountancy requirements.
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