Partnership Accounts Preparation, Filing and Advice
A partnership is a relatively simple and flexible way for two or more people to own and run a business together. In a partnership, you and your partner (or partners) personally share responsibility for your business. This includes:
- any losses your business makes
- bills for things you buy for your business, like stock or equipment
Partners share the business’s profits, and each partner pays tax on their share.
Setting up as a Partnership
There are several things that you need to do when you set up as a business partnership and we can help you with the process:
Decide on a name
You can trade under your own names, or you can choose another name for your business. You don’t need to register your name. You must include all the partners’ names and the business name (if you have one) on official paperwork, for example invoices and letters.
Choose a nominated partner
The nominated partner is responsible for managing the partnership’s tax returns and keeping business records.
Register with HMRC
You must register your partnership for Self-Assessment with HM Revenue and Customs (HMRC) if you’re the ‘nominated partner’. This means you’re responsible for sending the partnership tax return.
You need to register by the 5 October in your second year of trading. Registration can be done online at
The other partners need to register separately.
Register for VAT
You must register for VAT if your VAT taxable turnover is more than the registration threshold – currently £85,000. You can choose to register if it’s below this, for example to reclaim VAT on business supplies. There can find more information about VAT in our VAT page.
Prepare a Partnership Agreement
There is no legal requirement to have a partnership agreement, but it is highly recommended. A well written agreement can prevent problems in the future and ‘off the shelf’ templates are readily available. If there is no agreement, then the provisions of the Partnership Act will apply.
A partnership agreement should cover points such as:
- The share of profits and losses between partners
- Who can bind the partnership to a contract
- Decision making – who decides, particularly if there is a dispute
- Whether new partners can be admitted
- What happens on the death of a partner
Open a business bank account
Open a business bank account in the name of the partnership and use it solely for business purposes. If you want to pay using a debit or credit card use cards connected to your business bank account. This keeps your personal and business financial transactions separate and makes it much easier to do your book keeping and prepare your annual accounts. It also offers some protection if HMRC decide to enquire into your business affairs.
If you would like a free no obligation meeting to discuss how we can help with setting up your partnership just get in touch.
Record keeping and book keeping
If you are in business, you are responsible for reporting all your income and expenditure to H M Revenue & Customs in an accurate and honest manner. The key is keeping good records. We will always be happy to advise on ways you can set up or improve your book keeping system as it will make the preparation of your partnership accounts and partnership tax return easier (and cheaper). You can also read our guidance on bookkeeping, although the best approach depends on you and your business.
Partnership accounts contain the information needed to prepare the partnership tax return. Accounts also give you a clear picture of how the business is performing. Is it making a profit or a loss? Is the profit growing in line with the business plan?
Simply keeping an eye on the bank balance isn’t enough. If you run a business, you need at least a basic understanding of how to ‘read’ accounts to understand whether your business is succeeding.
We can prepare your partnership accounts from your book keeping records, whether you use a book keeping package or excel. The accounts consist of an Income and Expenditure account that shows your total sales, expenses by category and profit (or loss) for the year. Prior year figures are also shown which provide a useful comparison.
We will also include a ‘balance sheet’ in your accounts. The balance sheet will show any assets owned by the partnership (such as machinery or computer equipment), and amounts owed to and by the partnership. There is also a section that shows the amount of capital (money) invested in the business by each partner, their share of the profit and the amount they have taken out of the business as ‘drawings’. It is important to note that each partner is taxed on their share of the profit and not their drawings.
If we prepare your accounts, we will always ensure that you understand what they mean. Is your business on plan? Does your balance sheet show a strong business or one with potential problems (e.g. excessive debt)? Has one of the partners taken too much out of the partnership leading to an overdrawn capital account?
The partnership accounts are used in the preparation of the partnership tax return which you can read about here.
If you would like a free no obligation meeting to discuss how we can help with the preparation of your partnership accounts just get in touch.
Partnerships – Advantages and disadvantages
Partnerships benefit from the following advantages:
- Access to more capital. – A partnership can secure capital from more than one person.
- Skills and division of labour – partners will have different skills and talents and the workload can be shared.
- Borrowing capacity – loans will be based not only on the basis of the partnership’s assets but also on the personal properties of the partners increasing borrowing capacity.
- Expansion of business – due to the availability of enough finance and skill the business can be expanded very easily.
- Wise decisions – in partnership, decisions are taken with the consultation of all the partners which can lead to wiser decisions.
- Division of risks – all losses and risks of the business are shared by all the partners.
The following are the disadvantages of a partnership firm:
- Unlimited liability: The creditors of a firm can recover their loan amounts from the personal properties of the partners when the firm’s sources are not enough. Therefore, the personal properties of the partners are not safe.
- Joint and several liability: Every partner is jointly and separately liable for the firm’s debts. In case of insolvency of partners, the solvent partners must pay the debts of the insolvent partners also.
- Internal conflicts: Differences and disputes among the partners are very common. These conflicts harm the firm as a whole.
- Delay in decisions: Sometimes the partners may not agree with one another in taking decisions. As a result, partners will not be able to take quick decisions.
Different forms of business have different advantages and disadvantages. You may find it useful to read about the advantages and disadvantages of a limited company on our statutory accounts page before deciding to form a partnership.
We can advise you on the different forms of business as well as the tax implications just get in touch.