What is a partnership?
A partnership is a business owned and run by two or more people who share its profits and, in an ordinary partnership, share personal responsibility for its debts.
What a partnership means
An ordinary (general) partnership is the simplest way for two or more people to trade together. There is nothing to register at Companies House. Instead, the partnership registers with HMRC, nominates a partner to handle its tax affairs, and each partner registers individually for Self Assessment.
The partnership itself does not pay income tax. It files a partnership tax return (SA800) showing the profit and how it is split, and each partner pays income tax and Class 4 National Insurance on their share through their own return.
Unless the partners agree otherwise, the Partnership Act 1890 says profits are shared equally, every partner can bind the business, and partners are jointly and severally liable for its debts: a creditor can pursue any one partner for the whole amount.
Example
Two graphic designers run a partnership with a profit of £96,000. Their written agreement gives Aisha 60% and Ben 40%, because Aisha works full time.
| Partner | Share of profit | Income tax | Class 4 NI |
|---|---|---|---|
| Aisha | £57,600 | £10,472 | £2,408.60 |
| Ben | £38,400 | £5,166 | £1,549.80 |
Each pays tax on their share of profit, regardless of how much they actually drew from the business bank account.
Why it matters for your business
A written partnership agreement is essential. It should cover profit shares, capital contributions, drawings, decision-making, what happens if someone leaves or dies, and how disputes are resolved. Without one, the 1890 Act's defaults apply, which rarely suit modern businesses.
Unlimited liability is the main risk. If one partner signs a bad contract, the others can be on the hook. That is why many professional firms use a limited liability partnership (LLP) or a limited company instead.
Partnership vs LLP
An LLP is taxed the same way but registered at Companies House, files public accounts and gives members limited liability.
Records and returns
The nominated partner files the partnership return, SA800, by 31 January after the tax year if filed online. Each partner then includes their share on their own Self Assessment return using the partnership pages. Partners should keep their own copies of the partnership accounts, because HMRC can charge penalties on each partner if the partnership return is late.
Common questions
No. An ordinary partnership is tax transparent: each partner pays income tax and Class 4 National Insurance on their share of the profits through Self Assessment. Only a company partner would pay Corporation Tax on its share. The partnership return shows how profit is split between the partners.
It is not legally required, but without one the Partnership Act 1890 applies, including equal profit shares and dissolution when any partner leaves. A written agreement avoids costly disputes later. It should also cover capital, drawings and how decisions are made.