FID Trust International

You can set up a limited partnership to run your business.

Advantages

Business owners who do not want the liability for the debts incurred by the corporation prefer this option. Limited partners usually do not play any role in the day-to-day management of the company.

Generally, pass-through taxation is applicable to Limited Partnerships, meaning that the tax burden is passed on to the partners instead of the partnership itself.

Thus, profit earnings are passed on to the partners in the form of wages, income, and profit payments and each partner pays tax that is proportionate to his individual share of profits.

A business can obtain much-needed investment capital by giving more passive investors the option of reducing their risks by becoming limited partners.

Since there is no direct involvement of limited partners in the management of the business, general partners enjoy full autonomy and have the right to make important business decisions.

In the case of a general partnership, all partners are responsible for the debts and other liabilities. The liability of a limited partner does not exceed his capital investment in the company.

The rules are different for setting up a limited liability partnership, an ‘ordinary’ business partnership or a private limited company.

You must have at least one ‘general partner’ and one ‘limited partner’.

General and limited partners have different responsibilities and levels of liability for any debts the business can’t pay. All partners pay tax on their share of the profits.

You can’t be a general and a limited partner at the same time.

All partners are equally responsible for any debts or obligations until the partnership has been registered.

Limited partners

As a limited partner you:

  1. contribute an amount of money or property to the business when it’s set up,
  2. are only liable for debts up to the amount you’ve contributed, one or more persons called limited partners who can contribute a sum/sums of money as capital, or property valued at a stated amount,
  3. can’t manage the business,
  4. can’t remove your original contribution.

You must register for Self Assessment with HM Revenue and Customs (HMRC).

General partners

As a general partner you:

  1. are liable for any debts the business can’t pay,
  2. control and manage the business,
  3. can make irreversible (‘binding’) decisions for the business,
  4. can apply for your business to act as an authorised contractual scheme (ACS).

You must:

  1. register the business with Companies House,
  2. register the business for Self Assessment with HMRC - you must also register separately as an individual,
  3. register the business for VAT if you expect sales to be more than £82,000 a year,
  4. send an annual return to Companies House,
  5. act for the business if it’s wound up and dissolved.

You don’t have to send accounts to Companies House unless the general partner is a limited company.

You must also tell Companies House about any changes, eg to the registered name, address or members.

Set up the partnership

When you set up a business partnership you need to:

  1. choose a name,
  2. choose a ‘nominated partner’,
  3. register with HM Revenue and Customs (HMRC).

The Limited Partnership Act requires partnerships to register in that part of the United Kingdom where their principal place of business is situated or is proposed to be situated. An oversea partnership usually has its principal place of business overseas, and would not be registered for that reason.

The ‘nominated partner’ is responsible for managing the partnership’s tax returns and keeping business records.

Register the partnership with HMRC

You must register your partnership and its members with HM Revenue and Customs (HMRC). A partner doesn’t have to be an actual person. For example, a limited company counts as a ‘legal person’ and can also be a partner.

Partners who are individuals pay Income Tax and National Insurance through Self Assessment.

If a partner is a company, it must be registered with HMRC for Corporation Tax.

You can appoint an agent to deal with HMRC on your behalf.

You must register the partnership or individual partners by 5th October in your business’ second tax year, or you could be charged a penalty.

Register for Self Assessment

Each partner must be registered with HMRC for Self Assessment.

Your partnership must also be registered for Self Assessment. Choose a ‘nominated’ partner to either:

  1. register online - limited liability partnerships can’t use this service,
  2. download and fill in form SA400.

When the nominated partner registers the partnership they will automatically register themselves for Self Assessment.

Register for VAT

Your partnership must register for VAT with HMRC if their VAT taxable turnover is more than £82,000.

You can choose to register if it’s below this, eg to reclaim VAT on business supplies.

Any partner can register, either:

  1. online, or
  2. by downloading and filling in VAT 1 and VAT 2.

If you use the paper forms you still need to submit your VAT Return online. When you get your VAT number from HMRC, sign up for a VAT online account (select option ‘VAT submit returns’).

Once you’re registered for VAT you need to let HMRC know every time someone leaves or joins your partnership.

Partnership tax return

As the nominated partner you’ll get a letter from HM Revenue and Customs (HMRC) in April or May telling you to send a partnership tax return.

You can either complete the return:

  1. online - you’ll need to buy software,
  2. on paper - download form SA800 if HMRC hasn’t sent you one.

You must let each partner know their share of the profits and losses for their Self Assessment tax returns.

Deadlines

Send the partnership tax return by the usual Self Assessment deadlines.

If any of the partners are a company the deadline for:

  1. online returns is 31st January following the end of the tax year (or 12 months from the partnership’s accounting date if later),
  2. paper returns is 31st October following the end of the tax year (or 9 months from the partnership’s accounting date if later).

All partners can be charged a penalty if the partnership tax return is late.

Record keeping

You need to keep your records for 4 years after 31st January following the end of the tax year.

FID Trust International can prepare all necessary documentation on your behalf to register a Limited Partnership Company. All registrations will be done too. To order this service Please contact us by telephone 0207 439 3400 (0044 207 439 3400 – International) or E-mail us.