key concern when entering into a partnership is how partnership tax should be paid, and who is responsible for these partnership tax issues. Optimising the tax regime is important for all businesses. One of the advantages of partnership is that partners (or members of an LLP) are treated as self employed (Schedule D) by HM Revenue & Customs.
The partnership tax rules mean that partners only pay tax once, unlike in a limited company where profits are taxed for Corporation Tax and then directors are paid as employees and under PAYE the profits are taxed a second time. Shareholder directors can take dividends instead of salary, but these are still taxed and the 2009 budget has moved against the lower tax rates that dividends used to attract.
Limited Liability Partnership tax
In a Limited Liability Partnership (LLP), one member’s liability is limited to the amount invested by that member in the LLP. This is different from that of a general partnership where liability of partners is potentially unlimited. Conversion from a general partnership to an LLP is usually tax neutral.
There are special rules for Investment LLPs, which are LLPs formed purely to invest and take income from that investment, rather than to derive income from actual trading. An LLP is a separate entity for tax when it comes to VAT, and can be registered for VAT if it meets the usual VAT requirements.
Completing your partnership tax return
- All partners in a general partnership will need to complete an annual self assessment tax return
- The nominated partner in a general partnership will also need to complete an annual Partnership Tax Return
- In a limited partnership or LLP, the Partnership Tax Return will need to be completed by the designated member(s)
Late, incomplete or inaccurate tax returns are subject to penalties, and all partners liable to pay a penalty â€“ so it is vital your partnership makes preparations for this paperwork, and seeks advice from a professional on any problems.
Get in touch with Ralli
At Ralli, we also have the experience needed to cover a wide range of general and limited liability partnership issues concerning tax and finances, ranging from partner bankruptcy to accounts and property matters.
When entering a partnership it is important to consider the tax implications, and whether a LLP is the best option for you.
Ralli Partnership Law can advise on all areas of a business partnership and how to best resolve partnership tax issues contact us today on 0161 832 6131, or use the form on the right to request a consultation.