Ready to Join Forces? Key Things to Know About Partnerships - Guide to Partnerships for UK Businesses

Before diving into the administrative requirements, it's important to understand the foundational legal structure of an unincorporated partnership. A partnership is a business structure where two or more individuals (partners) share the responsibilities, profits, and liabilities of the business. The partnership is governed by the Partnership Act 1890 (unless you have a written partnership agreement that overrides its provisions).

The Partnership Act 1890

If no formal written agreement is in place, the Partnership Act 1890 automatically applies to your business. This Act sets out key terms governing your partnership, such as how profits and losses are shared, the rights and duties of partners, and what happens if the partnership ends or if a partner wishes to leave. The Act assumes that profits and losses are shared equally among partners unless stated otherwise.

What is a Partnership Agreement?

A partnership agreement is a written document that clearly outlines the specific terms and conditions of the partnership. It defines how the business will be run, including profit-sharing, responsibilities, and how to handle disputes or changes in the partnership structure. Having a partnership agreement in place is strongly recommended to prevent misunderstandings and provide clarity on each partner's rights and obligations.

Without a partnership agreement, the terms of the Partnership Act 1890 automatically govern, which may not always reflect the intentions or expectations of the partners. This can lead to disputes or complications, especially when partners disagree on financial or operational matters. A clear written agreement can help avoid these issues and provide a framework for the business's operations.

Key Dates Summary

• Register with HMRC: By 5 October following the end of your first tax year in business.
  Example: If you started on 1 June 2025, register by 5 October 2026.
• Tax Year: Runs from 6 April to 5 April of the following year.
  Example: The 2024/2025 tax year is from 6 April 2024 to 5 April 2025.
• Partnership Tax Return Submission Deadline:
  • Paper tax return: 31 October following the end of the tax year.
    Example: For the 2024/2025 tax year, the paper return is due by 31 October 2025.
  • Online tax return: 31 January following the end of the tax year.
    Example: For the 2024/2025 tax year, the online submission is due by 31 January 2026.

Paying Tax as a Partnership

As with sole traders, each partner in an unincorporated partnership is personally responsible for paying tax on their share of the partnership's profits. The partnership itself doesn't pay tax directly, but each partner must report their share of the partnership income through their individual Self Assessment tax return.

How it works: The partnership income is divided among the partners based on their profit-sharing agreement. Each partner then reports their share of the partnership's income on their personal Self Assessment tax return (due by 31 January of the following year for online filing).

Partners are subject to payments on account for tax, just like sole traders. These advance payments are based on the previous year's tax bill, with two payments due:

• 31 January: First payment on account
• 31 July: Second payment on account

Any remaining balance for the 2024/2025 tax year would be due on 31 January 2026.

Record Keeping

Financial records must be kept for at least 5 years after the 31 January submission deadline.
Example: For the 2024/2025 tax year, keep your records until at least 31 January 2031.

Partnerships and MTD

HMRC has stated that the timeline for partnerships to join MTD for Income Tax will be announced at a later date. Therefore, partnerships are currently not required to comply with MTD for Income Tax. However, if an individual partner has other sources of income that fall under MTD requirements (e.g., sole trader income or property income), they may need to comply with MTD for those income streams.