Glossary · UK
What is Mixed Partnership?
A partnership with both individual and non-individual members (typically a company), used to allocate profits and sometimes challenged by HMRC anti-avoidance rules.
Full Definition
A mixed partnership is a business partnership that has at least one individual member and at least one non-individual member, usually a limited company. Historically, some partnerships diverted profits to a corporate partner to be taxed at lower Corporation Tax rates rather than at individual Income Tax rates. Since 2014, HMRC's mixed membership partnership rules can reallocate excess profits from the corporate partner back to the individual partners where the allocation reflects tax motivation rather than genuine commercial contribution. The individual partners are then taxed on those reallocated profits at their marginal Income Tax rates -- Basic 20%, Higher 40% or Additional 45% -- plus Class 4 National Insurance. Corporation Tax on retained corporate profits is 19% up to GBP 50,000 and 25% above GBP 250,000, with marginal relief between. Anyone structuring a partnership with a corporate member should take professional advice to ensure the profit split is commercially justified.