How are partnerships taxed in the UK?

A partnership itself doesn't pay tax — it's 'tax transparent'. Each partner pays income tax and National Insurance on their share of the partnership profits through their own Self Assessment tax return. The partnership also submits its own tax return (SA800) showing total income and how it's split between partners. Each partner is taxed as if they were a self-employed individual.

What is the difference between a partnership and a limited company?

In a partnership, partners share profits and have unlimited personal liability (or limited liability in an LLP). Partners pay income tax on their profit share. In a limited company, the company is a separate legal entity — shareholders have limited liability, the company pays Corporation Tax on profits, and directors/shareholders pay income tax on salaries and dividends. Companies generally become more tax-efficient at higher profit levels.

Do partners pay National Insurance?

Yes. Partners pay Class 2 NI (£3.45/week if profits above £12,570) and Class 4 NI (6% on profits between £12,570 and £50,270, plus 2% above £50,270). This is the same as self-employed NI. Partners do NOT pay employee's Class 1 NI. Salaried members of LLPs may be treated as employees for NI purposes.

What is the best structure — partnership, LLP, or limited company?

It depends on your circumstances. Partnerships are simple and low-cost to run but have unlimited liability. LLPs offer limited liability with partnership tax treatment. Limited companies offer limited liability and can be more tax-efficient for profits over roughly £50,000–£60,000. Consider liability, tax, admin complexity, and how you want to extract profits.

Partnership Tax and Structure Guide UK — How Partnerships Are Taxed | PocketWise

If you’re going into business with someone else, the legal structure you choose affects your tax bill, liability, and admin. This guide explains how partnerships work and compares them to alternatives.

Types of Partnership

Type	Legal liability	Tax treatment	Formal registration
Ordinary partnership	Unlimited — each partner is personally liable for all debts	Tax transparent — partners taxed individually	Register with HMRC, but not Companies House
Limited partnership (LP)	At least one general partner has unlimited liability; limited partners have limited liability	Tax transparent	Register with Companies House
Limited Liability Partnership (LLP)	Limited liability for all members	Tax transparent (mostly)	Register with Companies House

How Partnership Tax Works

Step	What happens
1	Partnership earns income and incurs expenses
2	Partnership calculates total taxable profit
3	Profit is allocated to each partner per the partnership agreement
4	Partnership submits SA800 tax return to HMRC
5	Each partner includes their share on their own SA100 Self Assessment return
6	Each partner pays income tax and NI on their share

The partnership itself pays no tax — it’s “tax transparent”.

Arrangement	How it works
Equal shares	Profits split equally (default if no agreement)
Fixed percentages	E.g. 60/40, 70/30
Salary + profit share	Partners receive a “salary” (priority profit share) first, then split remainder
Performance-based	Shares vary based on individual performance
Seniority-based	Senior partners receive a larger share

Important: A partner’s “salary” from a partnership is NOT wages — it’s a way of allocating profit. There’s no PAYE.

Tax on Partnership Profits

Income Tax

Tax band (2025/26)	Rate	On profits of
Personal allowance	0%	Up to £12,570
Basic rate	20%	£12,571 – £50,270
Higher rate	40%	£50,271 – £125,140
Additional rate	45%	Over £125,140

National Insurance

Class	Rate	On profits of
Class 2	£3.45/week	If profits above £12,570
Class 4	6%	£12,570 – £50,270
Class 4 (upper)	2%	Above £50,270

Example: Equal Partnership, £100,000 Total Profit

Detail	Partner A (50%)	Partner B (50%)
Profit share	£50,000	£50,000
Personal allowance	-£12,570	-£12,570
Basic rate tax (£37,430 @ 20%)	£7,486	£7,486
Class 2 NI (52 weeks)	£179	£179
Class 4 NI (£37,700 @ 6%)	£2,262	£2,262
Total tax + NI	£9,927	£9,927
Take home	£40,073	£40,073

Partnership vs LLP vs Limited Company

Feature	Partnership	LLP	Limited company
Liability	Unlimited	Limited	Limited
Tax on profits	Income tax + NI (each partner)	Income tax + NI (each member)	Corporation Tax (25%)
Extracting money	Profit share (automatic)	Profit share	Salary + dividends
Admin burden	Low	Medium	Higher (accounts, CT return, Companies House)
Privacy	Higher (no public accounts)	Accounts filed publicly	Accounts filed publicly
Cost to set up	Low (just partnership agreement + HMRC registration)	£40 Companies House + agreement	£12 Companies House + articles
National Insurance	Class 2 + 4	Class 2 + 4 (usually)	Class 1 on salary only
Tax efficiency at £50k+ profit	Lower	Lower	Often higher
Pension contributions	Self-employed options	Self-employed options	Employer contributions (tax deductible)

When Is a Limited Company More Tax-Efficient?

At roughly £50,000–£60,000+ profit, a limited company can save tax because:

Factor	Partnership	Company
Tax on first £50,270 profit	20% income tax + 6% NI = 26%	25% Corporation Tax
Tax on profit above £50,270	40% income tax + 2% NI = 42%	25% Corporation Tax + dividend tax on extraction
NI on profit extraction	6%–9% at all levels	Only on salary (can be minimised)

In a company, you can pay yourself a small salary (£12,570) and take the rest as dividends — which have lower NI costs.

Partnership Tax Returns

What the Partnership Submits

Form	What it covers
SA800	Partnership tax return — total income, expenses, profit allocation
Deadline (paper)	31 October following the tax year end
Deadline (online)	31 January following the tax year end
Penalty for late filing	£100 per partner

What Each Partner Submits

Form	What it covers
SA100	Personal Self Assessment — includes partnership income
SA104	Partnership supplementary pages
Deadline	31 January (online)
Payment on account	Two payments on account (31 January + 31 July)

Partnership Agreements

A written partnership agreement should cover:

Topic	Why it matters
Profit sharing ratios	How profits and losses are split
Capital contributions	How much each partner invests
Decision making	How decisions are made (majority, unanimous, etc.)
New partners	How to admit new partners
Leaving/retirement	How a partner exits and what they receive
Dispute resolution	Mediation, arbitration, or legal action
Death of a partner	Insurance, succession, buy-out
Non-compete clauses	Restrictions after leaving
Accounting year end	When the partnership’s tax year ends

Without a written agreement, the Partnership Act 1890 defaults apply — including equal profit sharing regardless of work contributed.

Expenses You Can Claim

Expense	Deductible?
Office/premises costs	Yes
Employee wages	Yes
Business travel	Yes
Professional indemnity insurance	Yes
Accountancy fees	Yes
Marketing and advertising	Yes
Equipment and tools	Yes (capital allowances)
Working from home	Yes (simplified or actual costs)
Partners’ own NI or income tax	No
Partners’ personal drawings	No — drawings are profit extraction, not an expense

Summary

Feature	Detail
How taxed	Each partner pays income tax + NI on their profit share
Partnership pays tax	No — tax transparent
Partnership tax return	SA800 submitted to HMRC
Each partner’s return	SA100 + SA104
Liability	Unlimited (ordinary), limited (LLP/LP)
More tax-efficient option	Limited company at higher profits (£50k+)
Essential document	Written partnership agreement
Key deadline	31 January for tax return and payment