Operating As A Partnership

Introduction

If two or more people wish to go into business together, but without forming a Limited Company, a partnership offers a simple way to get started.

partnership has no legal status as such, it is simply a 'vehicle' in which 2 or more self-employed people are involved in a business structure.

Partners are personally liable for any debts incurred in the running of your business. It is also important to note that all partners are responsible for all liabilities of the partnership.

This is similar to the sole trader route for an individual in many ways, especially tax issues.

Many of the consideration for Sole Traders equally apply to partners in a partnership. To read about Sole Traders please Click Here

Tax Issues

Basically, each partner’s business income is counted alongside their existing personal income, so the accounting side of your business will be very simple.

Each partner will need to inform the Inland Revenue that they are now self employed.

All partners will need to submit an annual self assessment form to the Inland Revenue and keep accurate and up-to-date records of all business transactions and accounts.

The partnership itself will also have to submit a Partnership Return, as well as each partner submitting a self assessment return. Each partner will be required to pay income tax and national insurance contributions on their share of the partnership profits.

If either of the partners withdraws from the business (if they resign, go bankrupt or die), the partnership must be dissolved instantly, since it has no legal status.

Value Added Tax (VAT)

The partnership will not usually need to register for VAT until it's turnover reaches a certain limit in any 12 months, or is expected to do so.

This limit – the ‘VAT threshold’ – is currently £64,000 (2007/8 tax year). The annual turnover is normally the total amount of money coming into your business from the goods or services you sell.

Insurance and Banking

You will probably need to take out Public Liability and Employers Liability as well as insurance specific to your trade.

You will also need to set up a partnership bank account.

Although strictly speaking a separate bank account is not a requirement, it is strongly advised that a bank account be set up in the name of the partnership. This will simplify the banking and accounting procedures.

Other Considerations

Setting up a partnership is not always the best route which is why we suggest discussing your choices with an accountant or other adviser.

The limited company route limits the personal liability of its directors if something goes wrong, whereas the partners in a partnership are ultimately personally liable for any losses the business makes, of if you are forced into bankruptcy.

It could also be said that having a limited company setup could enhance prestige and provide a more perceived professional appearance in certain industries.