No matter what type of company your business operates as you must understand your tax and financial reporting responsibilities. Making sure you pay the right tax on time is key to ensuring your business's success.
After all, it is difficult to focus on business growth strategies if HMRC is investigating you.
Regarding partnerships, especially ordinary partnerships that do not enjoy limited liability, it is crucial to understand what a tax return is and how it applies to individual self-assessments.
How is a partnership taxed?
For taxation purposes, ordinary and LLPs partnerships are treated as transparent. This means that the activities done by the business are deemed to have been conducted by the partners themselves rather than the partnership as a body.
Following on from this, unlike a company that pays corporation tax, a partnership is not taxed as a separate entity. Instead, the partners are taxed individually based on their share of the partnership’s profits and losses.
What is a partnership tax return?
One partner must be nominated to fill in and send a partnership tax return. This documents the business’s profits and losses and is used by the partners and HMRC to calculate the amount of tax owed by each partner.
The partnership tax return should state:
- The amount of consideration accrued to the partnership in respect of each disposal of partnership property. This information is needed to calculate Capital Gains Tax
- Any partnership trading or type of income, professional, rental, or investment income
- How the partnership profits are shared during the period covered by the return
Failure to file the return by the deadline (paper filing - 31 October 2022, online filing – 31 January 2023) will lead to a £100 penalty for each partner. Further filing delays could result in:
- Over three months late – a penalty of £10 for each additional day the Partnership Tax Return is late for a maximum of 90 days (£900)
- Over six months late – a fixed £300 penalty
- Over 12 months late – a further fixed £300 penalty
Financial records do not have to be sent with the return; however, you must ensure they are filed safely.
How does the information on the partnership tax return affect my self-assessment?
You need to use the profit allocation figures from the partnership tax return to fill in your self-assessment tax return, and this figure cannot be altered.
How to file my partnership tax return
A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations. The partnership tax return can be filed online with HMRC, but you must purchase commercial tax return software to do this. The tax return deadline is the 31st of January, the end of the tax year.
Alternatively, if you are wondering how to submit a partnership tax return via post, a paper form can be completed; the filing deadline is 31st of October, following the end of the tax year. The SA800 partnership tax return is the term HMRC uses for the paper version of the form and is usually filled out by the nominated partner, who is generally selected when the partnership is set up.
What if there is a dispute regarding profit allocation?
Luckily, the legislation provides a dispute resolution mechanism to resolve profit-sharing disputes. Suppose a partner disputes the amount of profit or loss allocated to them.
In that case, the dispute can be referred to the Tribunal within 12 months of the day on which HMRC sends the partnership return.
If the dispute relates to an amendment to the return within 12 months of the day on which the amendment is made.
You may also be able to rely on dispute resolution procedures set out in the LLP Members’ Agreement or the Partnership Agreement.
Get legal assistance from LawBite
Completing a partnership tax return and self-assessment can be complicated, so it is imperative to rely on professional advice if you are confused about any aspect of the process.
Your investment in getting professional guidance is minimal compared to the time and stress involved in getting your tax paperwork wrong.
Our friendly team can assist you with any questions regarding paying partnership taxes. Working with LawBite allows you to relax and focus on your clients and your business, knowing that your partnership's legal aspects have been expertly taken care of.