Partnership and taxes in the UK: a beginner’s guide

Partnership and taxes can feel complex at first. In simple terms, a partnership is tax transparent and each partner is taxed on their share of the profits, not on what they draw. The firm files a partnership return and each partner files a personal tax return with their partnership pages. For practical help, speak to us at Henry & Banwell Chartered Accountants in Bristol. This guide gives a plain English overview and shows you the first steps to get set up.

Partnership and taxes: how the UK system treats partners

A general partnership does not pay Income Tax itself. Instead, profits are allocated to the partners and reported on the firm’s partnership return SA800, while each partner includes their share on the partnership pages SA104 of their personal return SA100. New partnerships must register so HMRC can issue a Unique Taxpayer Reference for the firm, and each partner must register for Self Assessment in their own name using HMRC’s online services described in the page on registering a partnership.

What the partnership files

The nominated partner is responsible for completing and filing the annual SA800. The current guide and forms are in HMRC’s 2025 set, including the official SA800 manual and the supplementary SA800 Trading and Professional pages.

What each partner files

Each partner files a personal SA100 and adds either the short or full partnership pages. The short pages are shown on SA104S and the full pages on SA104F.

UTRs and registration timing

The nominated partner registers the firm and each partner registers separately. Processing times and online status updates are set out in HMRC’s service for registering a partnership.

Registration checklist for a new general partnership

Create HMRC access

Set up Government Gateway access for the partnership and for each partner. This is one of the first practical steps when dealing with partnership and taxes in the UK. Use HMRC’s service to register the partnership and register each partner for Self Assessment.

Choose an accounting date

Pick a year end that suits your trade and bookkeeping rhythm. From 2024 to 2025, HMRC moved everyone to a tax year basis, so non March or April year ends require apportionment as set out in the guidance on basis period reform.

Sort bookkeeping and records

Keep sales, expenses, bank statements, and partner capital accounts. If you trade over the VAT threshold you must register for VAT. HMRC confirms the rolling 12 month registration threshold is £90,000 on the page about VAT thresholds.

Income Tax and National Insurance for partners in 2025/26

Income Tax bands at a glance

Partners are taxed on their share of profits using the same bands as other taxpayers in England and Wales, with 20 percent basic, 40 percent higher and 45 percent additional rates shown on the page for Income Tax rates. Scotland has different bands.

Class 2 National Insurance

For 2025/26, HMRC lists the Class 2 rate as £3.50 a week and the Small Profits Threshold at £6,845 in the annual National Insurance rates. Class 2 and Class 4 are collected through Self Assessment, as confirmed in the page on self employed NI. If your profits are less than £6,845 a year you do not have to pay anything but you can choose to pay voluntary Class 2 contributions

Class 4 National Insurance

For 2025/26, the Class 4 main rate is 6 percent between the Lower Profits Limit of £12,570 and the Upper Profits Limit of £50,270, then 2 percent above that. These figures are shown in HMRC’s 2025 National Insurance rates.

Payments on account and deadlines

What payments on account are

HMRC may ask partners to pay two advance instalments towards next year’s bill. Each one is half of last year’s Income Tax and Class 4 amount. The rules and exceptions are explained in the page on payments on account.

When you pay

The two instalments are due by midnight on 31 January and 31 July, with any balancing payment and the return due by 31 January, as shown in the general Self Assessment deadlines page.

VAT for partnerships

When to register

You must register when your taxable turnover in any rolling 12 months exceeds the threshold. The current limit and the deregistration limit are set out in HMRC’s policy update on increasing the registration thresholds and the page listing VAT thresholds.

What to prepare

Keep accurate records from day one. If you are close to the threshold, add a monthly check of your rolling turnover.

Drawings vs profit allocations

What drawings are

Drawings are cash taken by partners during the year. They are not wages and they are not a deductible expense of the partnership. They are simply advances against the partner’s share of the profits shown on the SA800 and allocated on the SA104 pages. HMRC’s SA800 notes explain how the profit allocation works.

What profit allocations are

Profit allocations are the amounts that the partnership attributes to each partner for the period. This is what drives each partner’s Income Tax and National Insurance, regardless of how much they drew during the year. HMRC shows the partner pages on SA104S and SA104F.

Comparison table

Item	Drawings	Profit allocation
What it is	Cash taken during the year	Your share of the year’s profit
When recorded	When money leaves the bank	When accounts are prepared
Effect on bookkeeping	Reduces partner capital balance	Increases partner current account
Effect on tax	No direct effect on tax	Determines Income Tax and Class 2 and Class 4
Common pitfall	Thinking drawings reduce taxable profit	Forgetting to set aside cash for the tax bill

Basis period reform in brief

What changed

From the 2024/25 year, partnerships report on a tax year basis. If your accounts do not end between 31 March and 5 April, you apportion profits to match the tax year. HMRC explains the policy on its page about changes to reporting income.

What it means in practice

Partners with non March or April year ends may see transitional adjustments and overlap relief. The official guidance details the approach to apportionment and the transition year.

Worked example: two partner general partnership

Scenario

Profit for the year is £120,000 after allowable expenses. Partner A has a 60 percent share. Partner B has a 40 percent share. This simple scenario highlights how partnership and taxes work in practice for a small firm.

Allocation

Partner A is allocated £72,000 and Partner B is allocated £48,000. Each partner reports their share on SA104 with their SA100. Income Tax is calculated using the current bands on the Income Tax rates page and Class 2 and Class 4 are added based on the 2025 National Insurance rates. Payments on account may be required using HMRC’s rules on payments on account.

Drawings and cash flow

If Partner A drew £60,000 and Partner B drew £40,000, that does not change their taxable profit. The drawings are simply cash movements. The tax is driven by the profit allocation that appears in the partnership statement and the partner pages

Paperwork and record keeping essentials

What to keep

Keep sales invoices, purchase invoices, bank statements, VAT records if registered, partner capital and current accounts, and a clear partnership agreement. Filing references and deadlines are listed in the SA800 manual.

Personal take: common first year mistakes

Confusing drawings with profit

Treating drawings as a cost and expecting a lower tax bill. The bill follows the profit, not the drawings.

Missing payments on account

Forgetting that two instalments may be due in January and July. This often surprises new partners.

Late registration

Registering the firm but forgetting to register each partner. This slows down UTRs and can lead to late filing.

Wrapping Up

Partnership and taxes are simpler when you remember that profits, not drawings, drive the bill. Register the firm and each partner, keep tidy records, and plan for payments on account. If you want tailored help with returns and planning, our Partnership services team can guide you.

FAQs

Whether you’re just starting out or running a growing business, we’re here to help with practical accountancy and tax support that matches your goals. Learn how we support UK business owners at Henry & Banwell Chartered Accountants, and get in touch for advice tailored to your situation.