How is partnership income taxed in the UK?

Full answer

A partnership is not a separate taxable entity for income tax purposes. Instead, the profits (or losses) are allocated between the partners according to the partnership agreement (or equally if the agreement is silent) and each partner is individually taxed on their share. Types of partnership -- General partnership: each partner is jointly liable for business debts; all partners taxed as self-employed -- Limited partnership (LP): limited partners have liability limited to their capital contribution; taxed the same as general partners on their profit share -- Limited Liability Partnership (LLP): partners are "members" with limited liability; taxed the same as general partners on their profit share (HMRC treats LLP members as self-employed for tax unless they are "salaried members" who meet fixed-share/significant influence tests and are then treated as employees) Income tax on profit shares -- Profits allocated to partners are taxed under ITTOIA 2005 Part 9 (trading profits) or Part 5 (property income from property partnerships) -- Tax is paid by each partner based on their own marginal rate (basic, higher or additional rate) -- Profits for tax purposes are computed at partnership level using trading income rules (income less allowable expenses), then allocated -- Partnership profits are taxed on a "current year basis" following the basis period reform from 2024/25 (previously complex opening year rules applied) National Insurance -- Active trading partners pay Class 4 NI: 6% on profits between GBP 12,570 and GBP 50,270; 2% on profits above GBP 50,270 -- Class 2 NI was abolished from 6 April 2024; self-employed individuals (including active partners) now receive NI credits without paying Class 2, provided profits exceed the Small Profits Threshold (GBP 6,725 in 2026/27) -- Salaried LLP members treated as employees: PAYE + Class 1 NI applies to them instead Self Assessment filing -- The partnership (or nominated partner) files an SA800 Partnership Tax Return, allocating profits to each partner -- Each partner includes their share of partnership income on their own SA100 Self Assessment return (supplementary pages SA104) -- Payment on Account rules apply to partners as they do to sole traders Losses Partnership trading losses are allocated to partners in the same way as profits. Each partner can then use their share of the loss under the trading loss rules (carry-forward, sideways relief, opening-year loss relief) in their own tax return.

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