Tax Glossary


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Last updated on:
March 17, 2024

A partnership represents a business structure where two or more individuals manage and operate a business in accordance with the terms and objectives set out in a Partnership Agreement. This model is distinct from other business structures like limited companies, particularly in terms of tax filing and income distribution among the owners.

Tax Responsibilities in Different Business Structures

  • Limited Companies: These entities are required to submit Annual Accounts to Companies House and a Corporation Tax Return to HMRC.
  • Partnerships: This type of business needs to file a Partnership Tax Return with HMRC. Additionally, each partner must individually submit a Self Assessment tax return to HMRC, detailing their share of the profits.

Income Distribution and Taxation

  • Directors of Limited Companies: They have the option to draw a salary, which is subject to PAYE (Pay As You Earn) taxation. Moreover, after the company has paid Corporation Tax, directors can distribute the remaining profits as dividends, which are declared and taxed via the Self Assessment tax system.
  • Partners in Partnerships: The profits generated by the partnership are divided among the partners according to the agreed-upon shares outlined in the Partnership Agreement. Each partner is then responsible for paying Income Tax and National Insurance contributions on their portion of the profits through the Self Assessment process.

This clear differentiation in how profits are managed and taxes are filed underpins the unique nature of partnerships in comparison to limited companies, offering a framework that supports shared management and responsibility for the business’s financial obligations.

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