Setting up a partnership business in the UK can be one of the most strategic ways to build something strong with like-minded individuals. Whether you’re a small business owner, consultant, family-run start-up, or established entrepreneur, partnerships offer flexibility, shared responsibility, and opportunities for growth.
At Odiri Tax Consultants & Accountants, we help businesses across the UK form and manage partnerships with clarity, compliance, and confidence. This guide outlines the key steps, legal responsibilities, tax implications, and expert advice on forming a UK partnership.
What Is a Partnership Business?
A partnership business in the UK involves two or more individuals sharing ownership and the responsibilities of operating the company. This type of structure is distinct from a limited company, as partnerships are not legally separate from their owners. Consequently, partners share both the profits and liabilities, making it essential for all involved to have a clear understanding of their mutual obligations and expectations.
Partnerships are often favoured for their simplicity and flexibility. Partners can contribute different amounts of capital, skills, and labour, which allows for a diversified approach to business operations. Each partner’s input and efforts directly influence the success and growth of the business, fostering a collaborative environment where shared decision-making is key.
In a partnership, the mutual trust and cooperation among partners are paramount. These elements not only influence daily operations but also play a critical role in long-term strategic planning. Partners should regularly communicate and hold meetings to discuss the business’s progress, future plans, and any issues that may arise. This ensures that everyone is on the same page and can contribute effectively to the partnership’s goals.
Another aspect of partnership businesses is the shared responsibility for financial obligations and risks. Unlike limited companies, where liability is restricted to the amount invested, partners in a partnership business are personally liable for the business’s debts and obligations. This means that if the business incurs debts, creditors can claim the partners’ personal assets.
Given these dynamics, having a well-drafted partnership agreement is crucial. This document outlines the roles and responsibilities of each partner, profit-sharing arrangements, and procedures for resolving disputes. While not legally required, a partnership agreement can prevent misunderstandings and provide a clear framework for managing the partnership effectively. It serves as a roadmap that defines how key decisions will be made and ensures that all partners are aligned in their vision and approach to the business. By establishing clear guidelines and expectations from the outset, partners can focus more on achieving their shared goals and less on resolving potential conflicts.
Types of Partnerships in the UK
If you’re looking to start or join a partnership business in the UK, it’s essential to understand the structure that suits your needs best. At Odiri Tax Consultants & Accountants, we help business owners and professionals choose the right form of partnership.
There are four main types of partnerships in the UK:
- General Partnerships
- Limited Partnerships
- Limited Liability Partnerships (LLPs)
- Scottish Partnerships
General Partnerships
The most common type of partnership in the UK, general partnerships are governed by the Partnership Act 1890. A general partnership is formed when two or more people go into business with a shared goal of making a profit.
General partnerships are not separate legal entities, meaning the partners themselves are personally liable for business debts. Each partner acts as an agent of the partnership and can bind the business in contracts and agreements.
Key characteristics:
- No formal registration required
- Unlimited liability for all partners
- Shared responsibilities, profits, and losses
- Not taxed as a separate entity – profits are declared individually
Unsure if you’ve formed a partnership? Let us help you assess your business structure.
Limited Partnerships (LPs)
Limited partnerships are established under the Limited Partnerships Act 1907 and consist of:
- General partners who manage the business and bear unlimited liability
- Limited partners who invest capital but do not participate in management and whose liability is restricted to their contribution
- Limited partners risk losing their limited liability if they begin managing the business.
Commonly used in:
- Venture capital and private equity structures
- Collective investment schemes (including PFLPs)
- Tax-transparent investment vehicles
Don’t confuse Limited Partnerships with LLPs – they are structured differently and have unique tax rules.
Limited Liability Partnerships (LLPs)
LLPs combine the operational flexibility of a partnership with the legal protections of a limited company. They are legal entities in their own right, governed by the Limited Liability Partnerships Act 2000.
Key features:
- Members have limited liability
- LLPs must register with Companies House
- Must submit annual accounts and confirmation statements
- Members can take part in daily management
- Unlike limited partnerships, all partners in an LLP can be involved in decision-making without losing their limited liability.
LLPs are ideal for professionals seeking limited liability while retaining control over operations.
Scottish Partnerships
A Scottish partnership is similar to a general partnership but is treated as a separate legal person under Section 4(2) of the Partnership Act 1890. This allows the partnership to:
- Own property in its own name
- Enter into contracts
Scottish partnerships must still comply with self-assessment and tax obligations.
Types of Partners in a UK Partnership
Not all partners are created equal. In the UK, several types of partners exist, depending on their role, responsibility, and legal status.
Salaried Partners
Salaried partners are often employees rather than true partners. They receive a fixed income and may have a bonus linked to the firm’s performance but don’t typically share in risk or decision-making.
Tax treatment:
- Income is taxed under PAYE
- May be liable as a partner if held out as such to third parties
Labelling someone a ‘partner’ doesn’t automatically make them one in the eyes of the law or HMRC.
Self-Employed Partners
These partners share in both the risks and rewards of the business. Even if they receive a regular ‘salary’, it is generally treated as self-employment income, not employment income.
Corporate Partners
A corporate partner is a company that enters into a partnership. Where corporate partners are involved:
- Partnership profits are calculated using corporation tax principles
- Apportionment may be needed for accounting purposes
Odiri Tax Consultants & Accountants can help you manage partnerships with corporate entities and optimise your tax outcomes.
Indirect Partners
These are partners of a partnership that itself is a partner in another partnership. HMRC looks through the layers to identify the ultimate beneficial owners.
We assist with complex partnership structures involving multiple entities.
Bare Trustees
A person can act as a partner in a trust capacity. In such cases:
- The beneficiary is treated as the partner for tax purposes
- Tax assessments, penalties, and notices apply directly to the beneficiary
UK Taxation of Partnerships
When it comes to taxation, all UK partnerships—including Scottish partnerships—are treated as tax transparent. This means that HMRC “looks through” the partnership itself and taxes the individual partners directly on their share of income or gains, rather than taxing the partnership as a separate legal entity.
While Scottish partnerships do have a separate legal personality under Scottish law, this distinction has no impact on how they are treated for UK tax purposes. Just like their English and Welsh counterparts, they remain transparent for tax.
The same tax transparency applies to a Limited Liability Partnership (LLP)—but only if it is run with a view to making a profit. An LLP carrying on a trade, profession, or business qualifies for tax transparency, allowing profits (or losses) to be allocated directly to the members for tax purposes.
Important Note: If an LLP is not operated for profit—such as a non-trading or non-profit-making LLP—it may not be treated as tax transparent. In such cases, different tax rules may apply.
Odiri Tax Consultants & Accountants Tip: Always ensure your LLP is structured and operated with a clear business purpose to maintain its tax transparency.
How Are Partnership Profits Calculated?
Even though a partnership is not a taxable entity in its own right, the first step in determining each partner’s tax position is for the partnership to carry out a tax computation.
Here’s how it works:
- If the Partners Are Individuals – The partnership should calculate profits as if it were an individual taxpayer under income tax rules.
- If the Partners Are Companies – The computation should follow corporation tax rules, as if the partnership were a company.
- If there’s a Mix of Individual and Corporate Partners – The tax computation must be done separately for each category of partner.
Forming the Right Partnership for Your Business
Choosing the correct partnership type is essential to protect your interests, limit risk, and maximise tax efficiency. At Odiri Tax Consultants & Accountants, we offer:
- Expert guidance on selecting the right partnership structure
- Complete formation and registration services
- Partnership agreements and tax planning
Ready to form your partnership?
Setting up a UK partnership doesn’t have to be complicated—not when you’ve got the right experts by your side. Whether you're launching a brand-new venture or converting from a sole trader or limited company, we’ll guide you through every step with tailored advice and full compliance.
At Odiri Tax Consultants & Accountants, we specialise in forming ordinary partnerships, limited partnerships, and LLPs, with a focus on smart structuring, tax efficiency, and long-term growth. From drafting partnership agreements to registering with HMRC and Companies House, we've got you covered.
Let’s get your business off to the best possible start. contact today and speak directly with a specialist who understands your needs.
