How to Set Up a Business Partnership in the UK

What You Need to Know to Set Up a Business Partnership

Setting up a business partnership in the UK means you and your partner(s) will share responsibility for the business’s finances, including any profits or losses, and pay tax based on your share. It’s crucial to understand how to establish your partnership legally and ensure proper tax management. Here’s a comprehensive guide on how to set up a business partnership, choose the right name, and complete the necessary registrations.

Step 1: Setting Up Your Partnership

When you set up a business partnership, you and your partner(s) are personally responsible for the business’s debts and obligations. This means you are liable for any business losses and must pay for business expenses, such as stock or equipment. However, you also share the business’s profits, and each partner will pay tax on their share.

One key thing to note is that a partnership doesn’t always have to involve people. A limited company can act as a ‘legal person’ and serve as a partner in your business.

Step 2: Naming Your Business Partnership

You can either trade using your own name(s) or choose a business name. While you don’t need to register your name, it’s essential to ensure that your business name complies with legal requirements.

Your partnership name must not:

• Include terms like ‘Limited’, ‘Ltd’, ‘Limited Liability Partnership’, or ‘LLP’.
• Be offensive or suggest an official connection with government bodies without permission.
• Be identical to an existing trademark.

If you plan to use a specific word (such as ‘Accredited’) in your business name, make sure to seek permission from the Department for Business and Trade (DBT). Additionally, you should consider registering your business name as a trademark to prevent others from using it.

Step 3: Registering Your Partnership with HMRC

Once you have your business name and structure in place, you need to register your partnership for Self Assessment with HMRC. This ensures that your tax returns are filed correctly. The ‘nominated partner’ is responsible for managing the partnership’s tax returns and keeping accurate business records. Other partners will need to register individually.

Important:
You must register by 5 October in your business’s second tax year. If you miss this deadline, you could be fined.

For example, if you start a partnership or become a partner during the 2023-2024 tax year, you must complete the registration process before 5 October 2024.

Step 4: Registering for VAT

If your partnership’s VAT taxable turnover exceeds £90,000, you’ll need to register for VAT. You can voluntarily register if your turnover is below this threshold to reclaim VAT on business purchases.

You also have the option to appoint an agent to handle your VAT and other dealings with HMRC.

Additional Considerations for Limited Partnerships and LLPs

If your business partnership is structured as a Limited Partnership or Limited Liability Partnership (LLP), there are specific rules you must follow. These structures offer different levels of liability and tax responsibilities, so it’s important to consult with a legal or financial advisor to ensure you’re meeting all the necessary requirements.

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Conclusion:

Setting up a business partnership in the UK can be a great way to combine skills and resources, but it comes with specific responsibilities. From registering with HMRC to selecting a compliant business name, ensuring that each partner is registered for tax purposes is essential. With careful planning and adherence to the regulations, your partnership can operate smoothly and effectively.

FAQs on Setting Up a Business Partnership

1. What is a business partnership?
A business partnership is a type of business structure where two or more individuals (or entities) share ownership and responsibility for the business. Partners are liable for the business’s debts, profits, and losses.

2. Do I need a formal agreement to set up a partnership?
While it’s not legally required, it’s highly recommended to have a formal partnership agreement. This document outlines each partner’s responsibilities, profit-sharing arrangement, and how the partnership will be managed.

3. Can I set up a partnership if I don’t have a business partner?
Yes, you can still set up a partnership with one partner. The structure will be considered a “sole partnership” where you share the responsibility with just one other person.

4. How do I register a business partnership with HMRC?
The nominated partner must register the partnership with HM Revenue and Customs (HMRC) for Self Assessment. The other partners will also need to register separately as individuals. The registration must be completed by 5 October in the second tax year of the business to avoid penalties.

5. Can a limited company be a partner in a business?
Yes, a limited company can act as a partner in a business partnership. It is considered a “legal person,” meaning it can assume rights and responsibilities in a partnership just like an individual.

6. How can I protect my business name?
You can protect your business name by registering it as a trademark. This will prevent others from using the same name or a confusingly similar name for their business.

7. What are the differences between a Limited Partnership and an LLP?
A Limited Partnership involves at least one general partner with unlimited liability and one limited partner whose liability is restricted. An LLP (Limited Liability Partnership) provides all partners with limited liability. Each structure has different tax implications and levels of responsibility, so it’s important to choose the one that fits your business goals.

Also read: Incorporating an LLP in the UK – A Complete Guide

Source / Ref.: Gov.uk  Contains public sector information licensed under OGL v3.0.