This Content Was Last Updated on April 6, 2023 by Jessica Garbett
A partnership is a more complex choice of trading structure, but can offer some advantages. Our guide to Choice of Structure for Yoga Teachers comments more on this.
What is a Partnership
- As the name implies its two or more people working together, probably with a trading name. This may suit two or more Yoga Teachers co-owning a small studio, or a married couple teaching together.
- The business is synonymous with its owners at law, compared to a company where there is a separate legal identity. It is best thought of as a number of Sole Traders sharing a business name and accounting.
How is a Partnership formed
- A partnership can be formed with very minimal paperwork, potentially just registration with HMRC.
- A partnership will normally want a separate business bank account.
- Apart from a married/civil partnership couple teaching together, in most instances a partnership agreement is a sensible precaution to have, as this sets out how the business is run.
Taxation of a Partnership
- The tax position for a partner in a partnership is almost identical to that of a sole trader.
- Partnership accounts are prepared on similar principles to a sole trader, and with the same rules regarding expenses.
- A Partnership Tax Return is submitted which splits the profits between partners.
- Each partner then enters their share of profits in their personal tax return and the calculation of Tax and NI on the profit share is identical as for a Sole Trader.
Limited Liability Partnerships
These are a hybrid between Companies and Partnerships.
- In terms of tax, they are treated as a partnership following the rules and process above.
- However they are registered at Companies House and afford the partners Limited Liability. The price for this is a more complex accounting regime, adherence to many aspects of company law, and a requirement to file information publicly including accounts and confirmation statements.
- Generally people either have a conventional partnership to keep things simple, or a limited company for the full benefits that provides – LLPs are possibly best reserved for specialist situations, although we can certainly assist in setting them up and administering them.