Partnership

Running a partnership in the UK

involves setting up and managing a
business structure where two or
more individuals or entities work
together to achieve a common goal
and share profits and losses.
Partnerships are relatively easy to set
up and offer certain advantages, such
as shared responsibility and flexible
management. Here are the key steps
and considerations for running a
partnership in the UK:
1. Choose Your Partners:
- Select partners who share your vision, skills, and commitment to the business.

2. Choose a Business Name:

- Decide on a suitable name for your partnership.

3. Partnership Agreement:
- Although not legally required, it is highly recommended to create a partnership
agreement. This document outlines how the partnership will operate, including the
rights and responsibilities of each partner, profit-sharing arrangements, decision-
making processes, and dispute-resolution procedures.

4. Business Structure:
- Register the partnership with HM Revenue and Customs (HMRC) for tax purposes.
You'll need to provide details about the partnership and each partner's tax information.
Each Partner must be registered for self-assessment.
5. Financial Management:
- Open a business bank account in the name of the partnership. Keep accurate financial
records, including income, expenses, and tax liabilities.

6. Taxation:
- Partners are personally liable for income tax on their share of the partnership's profits.
Partners should complete a self-assessment tax return each year.

7. VAT Registration:
- Depending on your turnover, you may need to register for Value Added Tax (VAT). The
current threshold is £85,000.

8. Insurance:
- Consider insurance coverage, including public liability insurance, to protect your
partnership against potential liabilities.
Setting up a partnership has several advantages and disadvantages, that you
should consider before proceeding. Here are some of the key implications:
Advantages:
1. Easy to set up: Partnerships are
relatively easy and inexpensive to set up
compared to other business structures,
such as limited companies.

2. Shared Responsibility: Partnerships

distribute the responsibility and
workload among partners, which can
be beneficial in managing day-to-day
operations.

3. Flexible Management: Partnerships

offer flexibility in decision-making and
management since partners have
direct involvement in running the
business.
4. Taxation: Partnerships do not pay corporation tax; instead, individual partners pay
income tax on their share of profits, which can be tax-efficient for some.

5. Profit Sharing: Profits and losses are shared among partners according to the
partnership agreement, allowing for a flexible distribution of income.

6. Resource Pooling: Partnerships can combine the skills, resources, and capital of
multiple individuals, potentially improving the business's chances of success.
Disadvantages:
1. Unlimited Liability: Partners have
unlimited personal liability for the
partnership's debts and obligations.
Each Partner is responsible for all the
debts so if one Partner can’t pay the
other is liable. This means personal
assets could be at risk if the business
faces financial difficulties.

2. Shared Decision-Making: Decisions

must be made collectively, which can
lead to disputes and conflicts if partners
have differing views or cannot reach a
consensus.
3. Lack of Separation: There is no legal separation between the business and its owners,
which can make it difficult to sell or transfer ownership and can affect succession
planning.

4. Tax Complexity: While partnerships offer some tax benefits, the taxation can be
complex, and partners are responsible for their own tax returns.
www.skytax.co.uk

support@skytax.co.uk

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