Accounting and Taxation
Partnerships must do bookkeeping and accounting as well as keep records showing business income and expenses as any other business or company. Partnerships may do their accounts on their own or employ an accounting company such as Best Formations Limited to record, classify and summarize their invoices, receipts, bank statements and payroll.
Professional bookkeeping and accounting serve the following goals:
- To make partnership annual self-assessment tax returns submitted to HM Revenue & Customs. Apart from that, being self-employed, partners must as well deliver their own annual self-assessment returns.
- To control and balance accounts with suppliers, customers, banks and employees (payroll).
- To communicate financial information and prepare financial reports about the business.
- To prepare financial documentation for investments, bank loans and insurances.
- To deliver reports on inventory and assets.
Partnerships do not pay income tax on their profits which are shared between the partners in accordance with the partnership agreement. In other words, profits before tax are transferred from the partnership to its partners. They, as self-employed or companies, must pay their income tax and if needed Class 4 National Insurance Contributions on profits yielded from the partnership.
All in all, partnerships have to take the following steps to sort out their income tax:
- To register a partnership with HM Revenue & Customs.
- To calculate the partnership profit on the basis of accounting records by figuring out the difference between the revenues and expenses.
- To share the partnership profit among partners in accordance with a partnership agreement. Each partner must add his profit share to his overall taxable income as self-employed.
- To prepare a partnership Self Assessment tax return and submit it to HM Revenue & Customs in a paper form by 31 October or online by 31 January following the end of the tax year. A partnership must send its tax return to HMRC even if it did not have any income in the tax year.
At the same time, partners being self-employed, must prepare their own Self Assessment tax returns and submit them to HM Revenue & Customs. In doing so, they have to add the partnership profits to their taxable income from other sources. Partners pay any income tax and NICs due by 31 January following the end of the tax year.
VAT (VALUE ADDED TAX)
Value Added Tax (VAT) is a consumption tax on most goods and services provided in the UK or imported from other EU and non-EU countries. The VAT rates are: standard – 20 per cent, reduced – 5 per cent and zero – 0 per cent. Some goods and services are exempt from VAT. It depends on particular goods or services supplied which VAT rate should be applied for a business transaction.
VAT regulations apply to partnerships in the same way as to other business types. A partnership must register with HMRC for VAT, if its turnover for the previous 12 calendar months has exceeded the VAT threshold of £83,000. If desirable, a partnership can register with HMRC for VAT voluntarily.
Partnerships using non-domestic premises have to pay business rates to the local authorities. Business rate is an equivalent of the council tax paid by individuals.
Apart from that, partnerships active in some businesses will have to pay specific taxes on particular goods and services such as Tobacco & Alcohol Duty or Betting & Gaming Duty.