Forming a partnership in business has many similarities with the process of becoming a sole trader.
The main difference being that it links several partners into the simplified business structure.
But, unlike a limited company, the partners who run a business partnership ‘personally’ share certain responsibilities, such as:
- Bearing the personal responsibility for any business losses.
- Sharing the liability for any debts on items bought by the business (e.g. equipment, vehicles, stock).
As a rule, the partners would share out any of the business profits between themselves. That means each partner has the responsibility of paying taxes on their own particular share.
There is no separate legal status for setting up a business partnership. You would need to set up a private limited company for the business to be a distinct legal entity.
Note: There is no rule saying your partner must be an actual person. In fact, a limited company can be a partner because it can count as a ‘legal person’.
How to Set Up a Business Partnership
One of the individuals must be the ‘nominated partner’. This person has several important responsibilities. They would manage the partnership’s tax returns and keep business records. To complete the process of setting up a business partnership, you must:
- Choose one of the partners to be the ‘nominated partner’.
- Choose a unique business name (avoid using a name used by another business).
- Register the partnership with HM Revenue and Customs (registration at Companies House is not required).
Note: A different set of rules and regulations exist for limited partnerships and for limited liability partnerships (LLP).
Business partnership names must not:
- Be offensive.
- Be the same as any existing trade mark (you can perform a search for a trade mark to check).
- Include any these words or phrases ‘limited’, ‘Ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’.
You can stop other people trading under your business name if it is important to your situation. In this case, you would need to apply to register a trade mark to stop it happening.
Note: The business trading name must not contain a ‘sensitive’ word or expression. Likewise, it must not suggest a connection with any government or local authorities (unless you have permission to do so). Further guidance is available about incorporation and names for companies in the United Kingdom.
Registering a Business Partnership UK
The ‘nominated partner’ would need to register for and file your Self Assessment tax return as part of setting up a business partnership. This is the person responsible for sending in the partnership tax return. The other partners would to make a separate registration.
Each of the partners would need to send in their own Self Assessment tax returns as individuals. But, HMRC can charge you a penalty if you fail to register by the 5th of October in the second tax year of the business.
Note: You can use your Government Gateway account (or create one) to register a partner or partnership.
Naming a Business Partnership
You may be wondering whether a business partnership can have a business name. In fact, you can choose to trade under your own name or under another chosen name for the business. There is no need to register your name (e.g. at Companies House).
But, you must include the names of all partners, and the business name if you have one (the trading name) on official company paperwork (e.g. invoices and letters).
Note: What you choose to name the business could be a crucial part of setting up as a sole trader. It is wise to do some research on website design and search engine optimisation if you are including them in your advertising and marketing campaigns.
Registering for VAT
You can choose to make a voluntary registration. It may suit your trading circumstances if you sell to other VAT-registered businesses. It means you would be able to reclaim the VAT.