Running a business as a partnership involves certain obligations to HMRC. One of these is the requirement to file a tax return. What is the process? How much will you have to pay? And, most importantly, how do you declare partnership income?
What is a Partnership Tax Return?
Under the Partnership Act 1890, a partnership is defined as an agreement between two or more people „to carry on business together for profit”.
The partnership itself is not taxed, but that doesn’t mean that no tax is due. The money generated by the partnership goes directly to each partner, which is why two documents are required:
- The partnership tax return (Form SA800) – One of the partners is responsible for submitting this form. It explains the partnership’s finances and tells HMRC how profits are shared.
- Self-assessment tax return (form SA100) with an additional page SA104 where each partner declares their share of the partnership income – this document is completed by each partner individually.
The partnership tax return must include information about the income and how it is divided between the partners. This is the basis for calculating how much tax each partner has to pay.
What are the Tax Rules for a Partnership?
As mentioned above, partnerships themselves are not taxed. Income from the partnership is divided between the partners, who then pay tax on their respective shares. You and your partner can decide what percentage of the income you each receive.
As with self-employment, normal income tax rates and thresholds apply. This means that if you divide the profits unequally, one of you (say 60% of the profits) may be taxed at a higher rate than the other partners (say 10%, 25% and 5% respectively).
Of course, the situation can be much more complex. Some partners may have other sources of income which could result in them being taxed at a higher rate on even a small share of the partnership’s profits.
How to File Income from a Partnership?
The SA800 form is eight pages long and must be completed by each partner in the partnership. There are additional pages for reporting income from banks or building societies. HMRC may also ask for evidence to support the income declared and any investments made.
In addition, one of two versions of the partnership forms must be submitted:
- Short version (SA104S) for income below £85,000. Use this version if your sales income is less than £85,000.
- Full version (SA104F), which covers all types of partnership income. Use this version if the partnership income exceeds £85,000 or if your case is more complex.
All partners in the partnership must sign the form. A copy is then attached to each partner’s personal Self Assessment tax return.
When Do You Need to File the Partnership Tax Return in the UK?
Now that you know how to file income from a partnership, the next question is: by when do you need to do it?
Now that you know how to declare income from a partnership, the next question is: by when do you need to do it?
Remember that there are specific penalties for filing your Self Assessment late. If you miss the deadline, an immediate penalty of £100 will be imposed on each partner. Additional penalties may follow, but these will always be applied to each partner individually, not as a group.
Missing the SA800 Deadline – When Can You Reduce or Avoid the Penalty?
If you run a partnership in the UK, it’s crucial to file your tax returns on time to avoid penalties.
If you receive a penalty, you have the right to appeal. You must explain the reasons for the delay within 30 days. Some reasons may allow you to reduce or even avoid the penalty. This is especially possible if the delay was caused by
- Problems with HMRC’s online service,
- Theft, fire, or flooding preventing you from filing on time,
- Serious illness affecting you or your partners,
- The death of a partner shortly before the filing deadline,
- Postal delays,
- Disability that hinders your ability to function.
