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Partnership Tax Return Preparation and Advice

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

https://www.gov.uk/set-up-business-partnership/register-partnership-with-hmrc

The other partners need to register separately so that thy can complete self-assessment tax returns that include the partnership pages. You can read more about individual tax returns on our Self-Assessment Tax Return Page.

The Partnership tax return

A partnership tax return contains:

  • Details of the partnership
  • Trading income and expenditure including any adjustments and claims for capital allowances. Most but not all this information will come from your partnership accounts
  • Income from savings (e.g. interest on the partnership deposit account)
  • Details of each member of the partnership and their share of the trading profits and income from savings.

If the partnership has other income such as foreign income or rental income you will need to complete the full version of the partnership tax return and any relevant supplementary pages

Most of the information from the trading section will come from your Partnership Accounts which you can read about on our Partnership Accounts Page. The trading income is subject to the same adjustments and allowances as income from self-employment. Details of some of these adjustments are reproduced below.

Trading income – Deductions and allowances

Some examples of the adjustments and allowances that may be required and that we can help you with follow. Please note – this is not a complete list. There are too many tax rules to mention here but this will give you a flavour of the things you will need to deal with if you complete your own return.

Private Use Adjustments – Some of the partners may use your own phone or mobile for your business – but how much can you claim as business expense? We can help you work out a reasonable figure that HMRC will accept.

Non-tax-deductible expenses – Some expenses incurred by your business may be non-tax deductible. You cannot deduct them when calculating your business profit. Examples include entertaining clients and certain legal expenses.

Use of home as office If one or all the partners work from home from home you can claim an allowance called ‘use of home as office’. If your business use is minimal this will be a flat daily rate. If your use of home is more substantial we can calculate a figure each year for each partner using your actual household bills and council tax and using an appropriate percentage of these costs.

Motoring expenses – If you use your own car or van for business purposes you can to claim a mileage allowance for the business miles that you travel in your vehicle.

Capital allowances

The assets of your business are items you buy to keep and use in your business, such as computer equipment, machinery and office furniture and cars. The general term for such items is ‘plant and machinery’.

The cost of these items is not deducted as an expense through your Income and Expenditure Account. Instead you need to keep a record of them – the date of purchase and cost and claim ‘capital allowances’ – which are an adjustment (deduction) to your taxable profits.

In most cases you can deduct the full cost of these items from your profits before tax using the Annual Investment Allowance which is currently £200,000. That means that if you have profits of £200,000 and have spent £80,000 on qualifying assets your taxable profits are reduced to £120,000.

You can’t use the annual investment allowance for most cars and if your expenditure on capital assets exceeds the annual allowance.

In these cases, capital allowances are claimed as a ‘writing down allowances’. Assets are placed into pools of expenditure and a percentage of the pool value is allowed as a deduction against profit. The percentage depends on the type of asset.

It’s worth noting that you don’t have to claim capital allowances immediately. If your taxable profits are less than the personal allowance a capital allowances claim would be a waste as you a reducing a non-taxable profit to a smaller non-taxable profit. If you defer claiming capital allowances on an asset you purchase, you cannot claim the Annual Investment Allowance and must claim Writing Down Allowances. These terms are explained below. Waiting and claiming a Writing Down Allowance when the business is more profitable is more tax efficient than ‘wasting’ an Annual Investment Allowance.

Capital allowances are a complex area and further guidance can be found on the HMRC website at

https://www.gov.uk/capital-allowances

Trading Losses

Trading losses may be expected when a business is starting up and even established business can experience difficult years or periods when investing for growth results in losses. Trading losses can often result in a valuable refund of tax.

The rules for partnership trading losses as the same as for sole traders except that the Your share of the partnership loss is treated as having arisen from a trade that you carried on alone.

That trade is regarded as having started on the date you became a partner (or the date you started the trade, if you previously carried on the trade on your own account).

It is treated as having ceased on the date you ceased to be a partner (or the date the trade ceased, if you continued to carry on the trade as a sole trader).

Trade losses may be used in several ways against:

  • income or possibly against capital gains of the same year or an earlier year
  • profits of the same trade from the previous year of future year

Not all losses may be claimed in all these ways and sometimes the amount of loss you claim is restricted or limited. There may also be more than one way to utilise a loss and it’s important that you choose the right relief for your circumstances

There are particularly flexible ways of using losses that occur in the first four years and final twelve months of trading.

If you would like a free no obligation meeting to discuss how we can help with the most tax efficient use of your trading losses just get in touch

Do I need an accountant to complete a Partnership tax return?

If you are familiar with figures and business tax, you may feel quite comfortable completing and submitting a partnership return.

If partners are joining and leaving the firm, or if the partnership reverts to the status of sole trader the accounting and tax issues get more complex and we suggest you seek professional help.

Using an accountant may not be as expensive as you think. It will save you time and give you peace of mind. We will check the figures entered your tax return and then go through them with you so that you can ensure everything is complete. We will them file your return for you.

If your partnership tax return includes more than trading (capital gains, rental income) an accountant is usually advisable. You need to be sure that any deductions and reliefs you are claiming are correct and that you are claiming all the deductions and reliefs you are entitled to.

Mistakes can be costly – both in terms of tax and HMRC penalties if they do enquire into your return.

What are the deadlines for filing a Partnership tax return?

The deadlines for submitting paper tax returns is 31st October following the end of the tax year. For online returns it is 31st January following the end of the tax year.

Late filing penalties

You’ll get a penalty of £100 if your tax return is up to 3 months late. If your return is more then 3 months late then each partner will be charged a daily penalty of £10 for the next 90 days (£900) and further penalties if your return is more than six months late.

You should bear in mind that each partner needs information from the partnership tax return to file their own personal tax returns. Their preferences may will need to be considered when you schedule the preparation of the partnership accounts and partnership tax return.

If you would like a free no obligation meeting to discuss how we can help with your partnership accounts and tax return just get in touch.