Tax issues and naming your LLP business

Issues concerning a partnership business.

Deed of Partnership.

A deed of partnership is a legally binding agreement between the partners who are in business together. It describes how the partnership will be run and the rights and duties of the partners themselves. It is not necessary to have a deed of partnership in order to set up a partnership, but it is a good idea, as it will help to avoid misunderstandings and disputes between partners in the future. If the partnership does not have a deed, it will be governed by the terms of the Partnership Act 1890. This does not offer solutions to many of the problems that can arise and may not suit the way that you and your partners want to work together.

As well as giving basic information about the partnership, such as its business name and the names of the partners, its type of business and maybe the start date (possibly also the closing date or date when the agreement needs to be renewed), the deed will usually set out:

  • the amount of capital that each partner is to contribute to the business
  • the way in which partners will share profits or losses, and whether any of the partners should be paid a salary
  • working arrangements, such as how much time each partner should contribute to the business, who does what management tasks and what type of decisions need collective agreement between the partners and
  • changes to the partnership, such as how new partners can be appointed and what happens if a partner dies or wishes to leave the partnership.

Tax Issues of a partnership

The profits are shared amongst the partners who are each personally responsible for paying income tax on their share of these profits. In most cases the partnership’s officers will be self-employed, so each member must include details of any profits they get from the partnership on their individual self-assessment tax returns each year. Self-employed partners are responsible for paying their own National Insurance contributions (NICs). It’s important that each member of the partnership should register as self-employed with HM Revenue & Customs (HMRC).

It is also possible for partnership members to be companies rather than individuals. If so, they must pay corporation tax on their profits from the partnership, and should include the profits on their self-assessment return for corporation tax.

If the partnership has or expects to have a turnover of more than £67,000, it will need to charge VAT to its customers and pass this on to HMRC. Partnerships with employees will need to collect and pay income tax and NICs, which will mean operating a PAYE

What does a new partnership need to do about tax?

Contact your local HMRC office to let them know that the business exists. They’ll send a Partnership Tax Return, which must be filled in to show the partnership’s income and expenses for the tax year. This includes a Partnership Statement, which shows how profits or losses have been divided amongst the partners. The partnership should appoint one of its officers, the nominated officer, to fill in the Partnership Tax Return and send it to HMRC. They should also ensure that all other officers are given copies of the Partnership Statement to help them complete their own personal tax returns.

Although the nominated officer has responsibility for the Partnership Tax Return, all the partners will be jointly liable for any penalties resulting from it being submitted late or incorrectly.

Naming your Partnership Business

Partnerships can trade under the names of the partners, for example Coyle and Ali, or it can use another business name. If your trading name does not include the partners’ names, you must still make sure that your business website and stationery display all of their names as well as the trading name. If there are more than 20 partners then the business website and stationery do not have to list them, but they must show the address of the partnership’s principal place of business.

The trading name should not be the same as or too similar to that of any business that already exists, and it should not contain words that people might find offensive or misleading.

If your business name is your brand and you want to protect it then you should seek specialist legal advice about trade mark registration.

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