Home Budget 2007 Company Profile Services Accountancy Zone Business Zone Tax Zone IR35 Update News Articles Feedback Search Legal Notice How To Find Us Two or more persons carrying on a trade or profession in common are deemed to be in partnership. The profits of the partnership are calculated as an entity and divided in the proportions previously agreed by the partners who may individually apply their personal allowances to their share of the profits in order to reduce their personal liability for tax. Legally, all that is required for a partnership is for two or more people to agree to carry on a business together and to share in profits. There are no written legal agreements required between the partners although it is advisable for an agreement to be drawn up. In a similar way to the sole trader, each partner is personally liable for the debts of the partnership, and his or her estate could ultimately be liable for partnership debts (even if these are not incurred by him or her) on death. A partnership agreement is therefore vital to the arrangement and this contract should cover how profits and losses are to be shared, and who does what within the partnership. The duration of the partnership should also be mentioned, the drawings and salaries of partners detailed, and limits should be set, and a formula determined for valuing the partnership shares. The agreement should deal with: Entry and exit of partners on death, retirement, disability and dismissal; Holiday arrangements; Access to capital accounts; Responsibilities of each partner; and How many signatures are required for cheques, contracts and so on. The limits of expenditure to be made by each partner are important, as well as the benefits to be provided, such as motor vehicles. A separate agreement may be required to regulate how shares in the partnership (value) pass should a partner die, become disabled or leave the partnership. Failure to do so may involve partnership shares passing by will to a relative of the deceased partner, which other partners may wish to avoid. From an income tax point of view, partners are similar to the self-employed and will be self-assessed. Partnership accounts should be made up, although there is no requirement to file accounts, nor to have accounts audited. If the partnership is VAT registered, the VAT record-keeping rules will apply. If it has employees, then it must be registered for PAYE and NIC purposes. Contact us for more information. [ Tax Zone Home]