Last updated: 16 October 2026
What is a partnership?
A partnership is a business run by two or more people who share the profits and the responsibility. It works much like being a sole trader, except there are several owners. A general partnership is not a separate legal person: the partners own the business assets together and each partner is personally liable for all the debts of the business, not just their share. This is called joint and several liability.
Types of partnership in the UK
| Type | Liability | Registration |
| General partnership | Unlimited, joint and several | HMRC only |
| Limited liability partnership (LLP) | Limited to what members invest | Companies House and HMRC |
| Limited partnership | At least one general partner with unlimited liability | Companies House and HMRC |
How are partners taxed?
The partnership itself does not pay income tax. Each partner pays tax on their share of the profits through their own Self Assessment tax return. For 2026/27 that means:
- Income tax at 20%, 40% and 45% after the £12,570 personal allowance
- Class 4 National Insurance at 6% on profits between £12,570 and £50,270 and 2% above
- Voluntary Class 2 National Insurance at £3.65 a week if profits are below the small profits threshold and you want to protect your State Pension record
Profits are taxed for the tax year (6 April to 5 April), even if the accounts end on another date, following basis period reform.
Registering a partnership with HMRC
The nominated partner registers the partnership for Self Assessment, and every partner registers as a partner. Do this by 5 October after the end of the tax year in which the business started. The partnership also needs to register for VAT if taxable turnover goes over £90,000 in any 12-month period.
The partnership tax return
The nominated partner files a Partnership Tax Return (SA800) by 31 January after the tax year if filed online. It shows the total profit and how it is split. Each partner then copies their share into their own return and pays any tax by 31 January, with payments on account where needed. Late filing penalties start at £100 per partner.
Why you need a partnership agreement
The law gives default rules if there is no written agreement, such as equal profit shares and the partnership ending when a partner leaves. A written agreement should cover profit shares, capital, drawings, decision-making, what happens when someone leaves or dies, and how disputes are resolved.
Example
Ali and Ben run a decorating business as equal partners. Profit for 2026/27 is £80,000. Each pays income tax and Class 4 NIC on £40,000. Ali also has rental income, so his total tax bill is higher, but the partnership return is the same for both.
Partnership or limited company?
A partnership is simple to set up and has fewer filing duties, but profits are taxed as personal income whether or not they are drawn. A limited company protects personal assets and pays corporation tax at 19% to 25%, but has more admin and dividend tax on extraction. As profits rise, a company may save tax.
Frequently asked questions
Can a partner be a company?
Yes. Mixed partnerships with corporate members have special anti-avoidance rules.
Do partners pay themselves a salary?
No. Drawings are not an expense. Partners are taxed on profit shares.
Is Making Tax Digital required for partnerships?
Not yet. MTD for Income Tax started in April 2026 for sole traders and landlords; partnerships will join later.
What if a partner leaves?
Tell HMRC and update the partnership return. A new agreement may be needed.
Related: limited liability partnerships, choosing a business structure and being self-employed.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with partnership accounts and tax returns. See our sole trader accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
