Partnership Taxation

September 2006

77.44 Partnership taxation

Partnerships are required to submit a specific Self Assessment tax return [note 1] and supplementary pages are available for certain kinds of income of the partnership. [note 2] The return also requires details of the profit allocation in force for the accounting periods covered by the return. HMRC sends the partnership return to the "nominated partner" i.e. the partner who has been nominated by the other members of the partnership to complete the return.

There are no assessments on the partnership under Self Assessment [note 3]. Instead each partner is assessed on his or her share of the partnership profits and each partner is solely responsible for the tax due on that share. There is no joint and several´┐Ż liability arising from a partner’s tax debts [note 4]. Individual partners need to include their share of any partnership profits in their own Self Assessment Tax Return.

77.45 Completing the return

The nominated partner in the partnership will need to fill in;

  • the core Partnership Tax Return (SA800), and
  • any supplementary pages which apply to the partnership. The nominated partner should make sure that the information which individual partners need to complete their personal Tax Returns is provided to them as quickly as possible.

There is a short form of the statement for partnerships with only trading profits and taxed interest and a longer version for partnerships with other sources of income or capital gains. Details from the accounts must be shown in part of the form known as Standard Accounting Information (SAI). If profits are under £15,000, only turnover, expenses and net profit need be shown. If profits are above £15 million, accounts must be submitted and the SAI is not completed. In all other cases accounts in support of the SAI are note required to be submitted unless requested by HMRC.

The statutory filing date for a partnership will depend on whether the partnership consists of individual or corporate partners or a mixture of both:

  • Where a partnership consists solely of individual partners the filing date will normally be 31 January following the end of the tax year.
  • Where the partnership consists solely of partners that are companies the filing date will be set by reference to the period covered by the return. So where the return was issued at the normal time the filing date will not be earlier than 12 months from the end of the period covered by the return.
  • Where the partnership consists of both individual and company partners the filing date of the partnership return will depend on when the accounting period ends. If the accounting date falls on or between 6 April and 31 January in any tax year the filing date for the partnership return will be 31 January next following the end of the tax year. But where the accounting date falls on or between 1 February and 5 April in any tax year the filing date for the partnership return will be the first anniversary of that accounting date.

If the time limits for filing a partnership return are not met fixed penalties will arise. And in more substantial cases additional daily penalties may be sought.

The initial fixed penalty will be £100 for each partner who was a member in the partnership during the period covered by the return and will be charged on individual partners not the partnership. If the return is still outstanding 6 months after the filing date there will be a further fixed penalty of £100 per partner unless daily penalties have already been sought.

There is no provision for fixed partnership penalties to be restricted where the tax due on partnership profits is minimal.

In addition to the fixed penalties a daily penalty of up to £60 per relevant partner per day may be imposed if leave is given by the Commissioners. The daily penalties apply for each day on which the failure to file continues following the date that the Commissioners gave leave. As with fixed partnership penalties, daily partnership penalties will be charged on individual partners not the partnership.

77.46 Salaried partners

Senior employees in professional firms are often described as partners whilst retaining their salaried employee status (salaried partners). They remain liable to income tax as an employee, with NIC also being payable as applicable.

77.47 Corporate/individual partners

The profit share of a company acting as a partner in a partnership for the relevant accounting period is liable to corporation tax, whilst the share relating to individual partners is charged to income tax.

77.48 Husband and wife

The national insurance costs of employing a spouse are usually greater than if they were a partner. It follows that partnerships may exist where a spouse becomes a partner simply to save a tax cost.

77.48A Requesting HMRC information regarding a partnership (inserted September 2012)

Where information is requested regarding a bankrupt who was a member of a partnership, HMRC can only provide information about the bankrupt individual. No information can be provided to the official receiver regarding solvent partners without the written consent of that solvent partner.

 

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