How Partnership Tax Works
A partnership is tax-transparent — the partnership itself doesn’t pay Income Tax. Instead, the profits are split between partners, and each partner pays tax on their share through their own Self Assessment return.[1]
This involves two returns:
- The partnership return (SA800) — filed by the nominated partner, showing total partnership income and how it’s allocated
- Each partner’s personal return — including their share on the SA104 supplementary pages
Registering a Partnership
The nominated partner must register the partnership with HMRC. Each individual partner must also register for Self Assessment separately.[4]
Both registrations must be done by 5 October after the end of the first tax year you need to file for.
Profit Sharing
Profits are allocated according to the partnership agreement. This doesn’t have to be equal — partners can agree any split that reflects their contribution.[1]
If there’s no written agreement, the default under the Partnership Act 1890 is an equal split.
Partnership Expenses
Allowable expenses are deducted from partnership income before the profit is split between partners. The same rules apply as for sole traders — expenses must be wholly and exclusively for business purposes.[3]
Each Partner’s Tax Return
On your personal Self Assessment return, you report your share of partnership profits on the SA104 supplementary pages. This share is then added to any other income you have and taxed at the relevant rates.[2] Each partner can file their personal return online using HMRC-recognised software such as GoFile.
National Insurance
Each partner pays National Insurance on their share of the profits, just like a sole trader:[5]
- Class 2: £3.45 per week (if profits exceed the small profits threshold)
- Class 4: 6% on profits between £12,570 and £50,270, then 2% above that
Limited Liability Partnerships (LLPs)
LLPs are generally taxed the same way as ordinary partnerships — profits pass through to individual members. However, “salaried members” (those who meet certain conditions) may be treated as employees for tax purposes.[1]
Frequently Asked Questions
Does a partnership pay Income Tax?
No. A partnership is tax-transparent, meaning the profits are split between partners and each partner pays Income Tax on their share through their own Self Assessment return.
How are partnership profits divided for tax?
Profits are allocated according to the partnership agreement, which does not have to be equal. If there is no written agreement, the default under the Partnership Act 1890 is an equal split.
What tax returns does a partnership need to file?
The nominated partner files a partnership return (SA800) showing total income and how it is allocated. Each partner then reports their share on the SA104 supplementary pages of their personal Self Assessment return.
Do partnership members pay National Insurance?
Yes. Each partner pays Class 2 and Class 4 National Insurance on their share of the profits, at the same rates as a sole trader.
Further Reading
- Allowable Expenses — what partnerships can deduct
- National Insurance for Self-Employed
- How to File Your Tax Return
- How to Register for Self Assessment
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Sources
- Set up a business partnership — GOV.UK
- Partnership tax return — GOV.UK
- Running a partnership — GOV.UK
- Register for Self Assessment — GOV.UK
- Self-employed National Insurance rates — GOV.UK