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

How much income tax will I pay as a partner?

As a partner, you pay Income Tax on your share of the partnership’s taxable profits.

The amount of tax you pay depends on your total taxable income for the tax year. This includes your share of the partnership’s profits as well as any other taxable income you receive, such as employment income, rental income or investment income.

Income Tax is charged at different rates depending on how much taxable income you have. The rates and thresholds can change from one tax year to the next, so it’s important to check the latest HMRC information before calculating your tax liability.

How is my profit calculated?

Each partner pays tax on their share of the partnership’s taxable profit, rather than on the partnership’s total profit.

The taxable profit is usually calculated in four steps:

1. Calculate the accounting profit: The partnership’s income and allowable business expenses are used to prepare the partnership accounts and calculate the profit for the accounting period.

2. Adjust for tax purposes: In general, business expenses must be incurred wholly and exclusively for the purposes of the trade to be allowably deductible. Therefore, if any items included in the accounts are not allowable for tax purposes, they must be added back when calculating the partnership’s taxable profit. 

3. Calculate the taxable profit: After any tax adjustments have been made, the partnership’s taxable profit is calculated.

4. Allocate the profit between the partners: The taxable profit is divided between the partners according to the partnership agreement. This may be an equal share or another agreed profit-sharing ratio.

5. Submit a personal tax return: Each partner then includes their share of the taxable profit on their own self assessment tax return or as a final declaration if using MTD for income tax, together with any other taxable income they receive.

Use our interactive self-employed tax calculator below to help estimate your Income Tax liability.

When do I need to report my share of the partnership’s profit?

How you report your share of the partnership’s profit depends on whether you’re required to use Self Assessment or Making Tax Digital (MTD) for Income Tax.

The partnership must submit a partnership tax return showing the partnership’s total taxable profit and how that profit is allocated between the partners.

Each partner must also report their own share of the partnership’s profit to HMRC. If you’re within Self Assessment, you’ll do this as part of your annual tax return. If you’re within MTD for Income Tax, you’ll report your income through compatible software and complete a final declaration after the end of the tax year.

When do I need to pay Income Tax?

Income Tax and, where applicable, National Insurance contributions are normally due by 31 January following the end of the tax year.

You may also need to make payments on account towards your next year’s tax bill. These are usually required if your Income Tax and Class 4 National Insurance liability exceeds £1,000, after taking into account any tax deducted at source.

Payments on account are normally due on:

• 31 January; and
• 31 July.

After your final tax liability has been calculated, you’ll either make a balancing payment or receive a repayment if you’ve paid too much.