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How much income tax will I pay if I’m in a partnership?

A partnership is a business which is owned and managed by more than one person. The partners are jointly responsible for all aspects of the business and will share the profits. Partners will pay income tax on their share of the profits (the rate and amount will be dependent on whether or not they have other sources of income). 

How much income tax will I pay as a partner?

Partners pay income tax on their taxable income (which includes their share of partnership profits), the current rates of income tax are:

rateTaxable income (2019/20)
20%£0 to £37,500
40%£37,500 to £150,000
45%Over £150,000

How is my profit calculated?

A partners share of profit is calculated in the following way:

  • Calculate the partnership profit

In the partnership accounts, expenses are deducted from the income to arrive at the profit. It is advisable to use the services of an accountant for this.

  • Business expenses

In order for expenses to be allowable for tax purposes they must be “wholly and exclusively” incurred for business purposes.

  • Non business expenses

For tax purposes any expenses which are disallowed must be added back and this will increase the profit which is taxable.

  • Split the profit

The profit is split between the partners in accordance with their agreement. This may simply be an equal share to each partner.

Calculate your income tax

This tool from HM Revenue and Customs (HMRC) will help you estimate your partnership national insurance and tax liabilities.

 

When do I need to report my profit?

Partnership profits are reported to Her Majesty’s Revenue and Customs (HMRC) via self-assessment tax returns

When do I need to pay Income Tax?

Income Tax and National Insurance contributions for partners are payable by 31 January following the tax year to which they relate.

If the amount exceeds £1,000, an individual is required to make a payment on account for the next tax year. Payments on account are due by 31 January and 31 July.

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