A business partnership is one of the most common structures for two or more people running a business together in the UK. While straightforward to set up, partnerships have specific financial and tax implications that both partners need to understand.
What Is a General Partnership?
A general partnership is an unincorporated business run by two or more people (partners) who share profits, losses and legal liability. Unlike a limited company, a partnership has no separate legal identity — partners are personally liable for all business debts.
💡 Key takeaway
In a general partnership, all partners share profits, losses and personal liability. There is no separation between the business and the individual — partners are personally responsible for all business debts.
The Partnership Agreement
A partnership agreement isn’t legally required but is strongly recommended. It should cover: profit sharing ratios, how decisions are made, what happens if a partner leaves, capital contributions and dispute resolution. Without an agreement, the Partnership Act 1890 applies — often with unhelpful default provisions.
Partnership Tax
Partnerships don’t pay tax as an entity. Instead, each partner pays tax on their share of profits through their own self assessment return. The partnership submits a Partnership Tax Return (SA800) to HMRC, plus individual SA800 supplementary pages for each partner.
💡 Key takeaway
Each partner reports their share of profits on their own Self Assessment return. The partnership also files a Partnership Tax Return (SA800) to HMRC every year — both obligations apply.
Shared Bookkeeping Responsibilities
The partnership’s financial records must cover all income and expenses. These are then allocated to partners according to the profit sharing ratio. Both partners should have visibility of the partnership accounts — not just the partner who manages the finances.
Limited Liability Partnerships
An LLP (Limited Liability Partnership) offers limited liability (like a limited company) while maintaining the tax treatment of a partnership. LLPs must register with Companies House and file annual accounts. They’re popular among professional firms such as accountancy practices, law firms and surveying firms.
🤝 General Partnership
- No registration required
- Unlimited personal liability
- Simple to set up
- No annual filing at Companies House
- Best for: small informal businesses
🏢 LLP
- Must register with Companies House
- Limited liability protection
- Annual accounts required
- More admin & compliance
- Best for: professional firms (lawyers, accountants)
Frequently Asked Questions
Do partners pay the same tax as sole traders?
Yes — each partner pays income tax and Class 2/4 National Insurance on their share of partnership profits, exactly as a sole trader would.
Can a partnership become a limited company?
Yes — incorporation involves transferring the partnership’s assets and liabilities to a new limited company. Your accountant can advise on the tax implications of incorporation.
What is a designated member in an LLP?
LLPs must have at least two designated members responsible for administrative duties — filing accounts, submitting confirmation statements etc. — similar to directors in a company.
