There are two different types of partnership, detailed below; Partnership (often referred to as a Sole Trader Partnership) and Limited Liability Partnership (LLP).

(Sole Trader) Partnership

In this type of partnership, two or more partners personally share responsibility for the business. Profits are shared between the partners and each partner pays tax on their share. Partnerships use their accounts to submit a Partnership Tax Return to HMRC each year which informs HMRC of tax due on the partnership’s profits and the amounts payable by each partner. The partners then report their share of the partnership profits via self-assessment. Partnerships of this type, as with a sole trader, can be employers and can be VAT registered.

Limited Liability Partnership (LLP)

A Limited Liability Partnership is exactly as it sounds – the liability of the partners is limited. An LLP is a separate entity owned by the partners. As with Sole Trader Partnerships, LLP members are self-employed for tax purposes. As an LLP is a separate entity, accounts must be filed with Companies House, as for Limited Companies. Each LLP member has to register for self-assessment with HMRC and pay tax on their share of the profits via a self-assessment tax return.

Good To Know

Upon set-up: When you first register an LLP or a Sole Trader Partnership, will receive various letters from HMRC and (if an LLP) Companies House. It is important that these letters are kept as these contain important information which will be required to file your accounts and tax returns.

Accounting Year: A LLP’s accounting year end is dictated by the month in which the company was incorporated (registered at Companies House).  For example, a company incorporated on 18th June 2018 would have a year end date of 30th June 2019.  The first year’s accounts would cover the period 18th June 2018 to 30th June 2019.  Future years’ accounts would cover 1st July to 30th June.  Year-end dates can sometimes be changed, where it is appropriate to do so.  A Sole Trader Partnership’s accounting year end can be any date but often, for simplicity, partners choose to fit these dates to the tax year.

Tax returns: The tax year for all partners is 6th April to 5th April as this follows the dates for self-assessment. If your LLP accounts run July to June, you would need to calculate which profits apply to which period – this is where year-end date changes can come in useful.

Deadlines: For taxable income received from either type of partnership between 6th April and 5th April, that tax return and tax payment would be due by 31st January following the end of the tax year.  For example, for profits received in the period 6th April 2018 to 5th April 2019, the self-assessment tax return and any tax payment would be due to HMRC by 31st January 2020. We strongly recommend that accounts and tax returns be prepared and submitted as soon as possible after the year end in order to have a clear picture of the business’ performance and time to ensure funds are available to pay any tax due to HMRC.

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