Key takeaways
- A partnership itself pays no Income Tax: each partner pays tax and National Insurance on their share of the profits.
- The nominated partner files a partnership return (SA800) by 31 January, and each partner reports their share on their own return.
- Profits are shared according to the partnership agreement, including any salaries or interest on capital.
- Since 2024/25, partners are taxed on profits for the tax year, not their accounting year.
- Partnerships register for VAT and as employers as a single business.
A general partnership is two or more people carrying on a business together with a view to profit. In England, Wales and Northern Ireland it has no separate legal identity, and for tax it is treated as transparent: the profits are taxed on the partners, not the partnership. This guide covers general partnerships; see the separate guide for limited liability partnerships.
How partners are taxed
Each partner is taxed on their share of the partnership’s profits for the tax year, whether or not they draw it out:
- Income Tax at 20%, 40% or 45% (or Scottish rates)
- Class 4 National Insurance at 6% on profits between £12,570 and £50,270 and 2% above (2026/27)
- Class 2 National Insurance is treated as paid where profits exceed £7,105
Drawings are not an expense and are not taxed separately: tax is based on profit shares. Partners pay through Self Assessment, with payments on account. See National Insurance for the self-employed.
The partnership return
The partnership must file a Partnership Tax Return (SA800) each year:
- it is filed by the nominated partner
- it reports the partnership’s income, expenses and profit, and how it is divided between the partners
- the deadline is 31 January after the tax year for online returns (31 October for paper)
Each partner then completes the partnership pages (SA104) of their own return, using the figures in the partnership statement. Late partnership returns attract a penalty for each partner.
Sharing profits
Profits are shared according to the partnership agreement. Without one, the Partnership Act 1890 presumes equal shares. Agreements commonly include:
- salaries for partners who work more, which are a first allocation of profit, not an expense
- interest on capital introduced
- a profit-sharing ratio for the remainder
Example
A partnership makes a profit of £150,000. The agreement gives Partner A a salary of £20,000 and shares the rest 60:40 between A and B.
| Partner A | Partner B | |
|---|---|---|
| Salary | £20,000 | £0 |
| Share of remaining £130,000 | £78,000 | £52,000 |
| Taxable profit share | £98,000 | £52,000 |
Each partner pays their own Income Tax and NI on their share, based on their own income and allowances.
Basis periods
From the 2024/25 tax year, partners are taxed on the profits arising in the tax year (6 April to 5 April). A partnership with a different accounting date must apportion profits from two sets of accounts. Many partnerships have moved their year end to 31 March or 5 April to simplify this. Transition profits from 2023/24 are spread over five years unless partners choose to accelerate them.
Joining and leaving
- A partner who joins is taxed from the date they join.
- A partner who leaves is taxed up to the date they leave, and may have Capital Gains Tax to consider on their share of partnership assets.
- Changing partners does not usually end the partnership for tax, as long as at least one partner continues.
Partnership assets and CGT
Each partner is treated as owning a fractional share of the partnership’s chargeable assets, such as property or goodwill. Changes in profit-sharing ratios, admissions and retirements can create gains or losses, so take advice before restructuring. Business Asset Disposal Relief may apply when a partner disposes of their interest.
VAT and payroll
The partnership is a single business for VAT and PAYE:
- if its taxable turnover exceeds £90,000, the partnership registers for VAT
- if it employs staff, it registers as an employer; partners themselves are not employees and are not paid through payroll
Making Tax Digital
Partnerships are not yet within Making Tax Digital for Income Tax. The government has said it will set out a timeline later. Individual partners with other self-employment or property income may be within MTD for that income. See the MTD timeline.
Frequently asked questions
Does a partnership pay tax?
No. Each partner pays Income Tax and National Insurance on their share of the profits through their own Self Assessment return.
Who files the partnership tax return?
The nominated partner files the SA800 partnership return by 31 January, and each partner reports their share on their own return.
Are partners’ salaries an expense of the partnership?
No. They are part of the profit allocation, so they are taxed as each partner’s share of profits.
Can a partnership be in Making Tax Digital?
Not yet. Partnerships will join later, with the timeline still to be confirmed.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance in October 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.