How to Set Up a Business Partnership in the UK

Under the Partnership Act 1890 s.1(1), a business partnership is "the relation which subsists between persons carrying on a business in common with a view of profit." Two or more people, no registration at Companies House, no incorporation fee. The partnership is tax-transparent: it does not pay income tax itself; each partner is taxed individually on their share of the profits in accordance with the firm's profit-sharing arrangements (ITTOIA 2005 s.850). The formation steps take a few days. The biggest risk is not the admin but the liability exposure, so this guide covers both in equal measure.

This guide covers all eight formation steps in order, from choosing a name to registering for VAT and setting up records. It then explains the partnership agreement clauses that override the PA 1890 defaults, how partners are taxed in 2026/27 (including Class 4 NIC, the removal of Class 2, and the payments-on-account "double bill"), the joint and several liability risk that most new partners underestimate, and a fully worked numerical example using a two-partner consultancy with a 60/40 profit split. If you are choosing between a general partnership, an LLP, and a limited company, the structure comparison sits in a separate guide. This guide is for people who have already decided to form a general partnership and want to do it correctly.

What a General Partnership Is (and What It Is Not)

A general partnership has five defining characteristics.

1. Two or more persons carrying on a business in common with a view of profit (PA 1890 s.1(1)). There is no statutory upper limit on partner numbers for most partnerships.
2. No registration at Companies House. Unlike a limited company or an LLP, a general partnership does not file anything at Companies House and pays no registration fee.
3. Tax-transparent. The partnership files an SA800 (Partnership Tax Return) but pays no income tax. Each partner is taxed individually on their allocated profit share (ITTOIA 2005 s.850).
4. Unlimited joint and several liability. Under PA 1890 s.9, each partner is personally liable for all debts and obligations of the firm, including those run up by the other partners in the ordinary course of business. A creditor can sue any one partner for the full amount. That partner then has a right of contribution from the others, but must pursue it separately. This is the most important structural risk and is covered in detail in Section 5 below.
5. No formal constitution required. The PA 1890 supplies default rules (including equal profit splits and automatic dissolution on a partner's death) that apply in the absence of a written partnership agreement.

What it is not. An LLP (limited liability partnership) is a separate legal person registered at Companies House under the Limited Liability Partnerships Act 2000; members have limited liability. A limited company is also a separate legal person, subject to corporation tax, with limited liability for shareholders. For a full comparison of structures, see our guide on limited company versus LLP for consultants.

Formation Checklist: Eight Steps to a Working Partnership

1. Choose a business name

   A general partnership can trade under the partners' own surnames or a chosen business name. If you use a name other than the partners' surnames, the Companies Act 2006 (Part 41) requires you to display all partners' names and a UK business address on business stationery and at any premises where you deal with customers. You cannot use "limited", "Ltd", "LLP" or "plc" in the name, and certain sensitive words (such as "Royal" or "Institute") require prior approval.

2. Draft a partnership agreement

   A written agreement is not legally required but is strongly recommended. Without one, the PA 1890 default rules apply: profits and losses split equally (s.24(1)), each partner has an equal say in management (s.24(5)), no partner may be expelled (s.25), no new partner may be admitted without unanimous consent (s.24(7)), and the partnership dissolves automatically on the death or bankruptcy of any partner (s.33). These defaults are unsuitable for most real businesses. See Section 3 below for the full list of clauses to include.

3. Nominate a nominated partner

   Before registering with HMRC, one partner must be designated as the nominated partner. This person is legally responsible for registering the partnership with HMRC, filing the annual SA800 partnership tax return, keeping the partnership's business records, and notifying HMRC of changes (a new partner joining, a partner leaving, or the partnership ceasing). Any partner can hold the role. Most partnerships choose the most administratively organised partner, or the one with the largest economic stake. The role carries real legal responsibility: a late or missing SA800 is the nominated partner's problem, not an abstract entity's.

4. Register with HMRC

   The nominated partner registers the partnership for Self Assessment on behalf of the firm using form SA401. Each individual partner also registers for Self Assessment (using SA1, or SA401 for their own individual capacity if not already registered). HMRC then issues a partnership Unique Taxpayer Reference (UTR) for the SA800, and each partner receives their own personal UTR for their individual return.

   Deadline: 5 October after the end of the first tax year in which the partnership trades. A partnership that begins trading on any date in the 2026/27 tax year (6 April 2026 to 5 April 2027) must register by 5 October 2027. Missing this deadline risks a penalty. In practice, register as soon as the partnership starts trading rather than waiting. For guidance on individual Self Assessment registration, see our guide to how to register as self-employed in the UK.

5. Open a business bank account

   A general partnership is not legally required to hold a separate business bank account (that obligation applies only to limited companies). In practice, keeping business and personal finances separate is essential for accurate profit calculation, clean tax records, and HMRC compliance. The account will typically be in the partnership name and will require identification from all partners. Most high-street banks offer dedicated partnership current accounts.

6. Set up bookkeeping records

   A partnership must maintain records adequate to complete the SA800 accurately. HMRC requires these records to be kept for at least five years after the 31 January filing deadline for the relevant tax year (TMA 1970 s.12B). At minimum, keep records of all income received, all business expenditure, VAT records if registered, and the profit-sharing arrangement in writing. The written profit-sharing record is particularly important: if the arrangement changes mid-year, the allocation on the SA800 must reflect each period's ratio, and HMRC can ask for evidence.

7. Consider VAT registration

   Register for VAT if the partnership's combined taxable turnover in any rolling 12-month period exceeds £90,000 (VATA 1994). This is the firm's total turnover, not each partner's individual share. Voluntary registration below the threshold is possible and may be worthwhile if the firm incurs significant VAT on its costs and supplies mainly VAT-registered business customers. Once registered, Making Tax Digital for VAT applies: digital records and MTD-compatible software are mandatory for all VAT returns.

8. Record the profit-sharing arrangement

   The SA800 requires the nominated partner to state each partner's profit share for the year. Keep a written record of the profit-sharing ratio and note any changes during the year. Under ITTOIA 2005 s.850, a partner's profit share is determined "in accordance with the firm's profit-sharing arrangements during that period": if the ratio changes mid-year, the allocation must be apportioned accordingly, using two sets of ratios for the two sub-periods. This record is also the foundation for each partner's SA104 pages on their individual return.

The Partnership Agreement: What to Include

A partnership agreement overrides the PA 1890 default rules. Every clause below displaces a statutory default that would otherwise apply without your consent.

Clause	Why it matters
Profit-sharing ratio	Overrides the equal-split default (s.24(1)); must match what is reported on the SA800
Capital contributions	Records what each partner puts in; governs return of capital on dissolution
Drawings policy	Sets how much each partner can draw before profits are formally allocated
Decision-making	Defines which decisions need a simple majority, a supermajority, or unanimity
Admission of new partners	Overrides the unanimous-consent default (s.24(7)); sets the consent threshold
Partner exit	Sets notice period, valuation of the outgoing partner's share, and goodwill treatment
Death or incapacity	Overrides automatic dissolution on death (s.33); allows the partnership to continue
Dispute resolution	Requires mediation or arbitration before litigation
Non-compete	Defines geographic and temporal scope for a departed partner
Accounts and records	Specifies who prepares accounts, when, and who has inspection rights

A solicitor should draft or review the agreement. The cost is modest relative to the disputes a well-drafted agreement prevents. An unsigned or ambiguous agreement can be as damaging as no agreement at all.

One clause that catches many partnerships out is the drawings policy. The PA 1890 does not say partners can draw money before the year end; it says profits are split at the end of the accounting period. In practice, partners draw monthly or quarterly during the year. Without an agreed drawings policy, one partner taking large drawings and then the business making a loss creates an immediate dispute about whether those drawings need to be repaid. A properly drafted agreement sets a maximum monthly drawing for each partner (often a percentage of the prior year's profit share), and specifies that excess drawings are a debt owed by the drawing partner to the firm. Get this clause in writing from the start.

A second commonly omitted clause is the valuation mechanism on a partner exit. When a partner leaves, their share of the partnership's goodwill, work in progress, and fixed assets needs to be valued and bought out. Without a pre-agreed valuation method, this becomes a dispute between a departing partner who wants the highest possible number and remaining partners who want the lowest. Common mechanisms include an agreed multiple of fee income, the last audited accounts book value (which often understates goodwill), or an independent expert valuation. Agree the mechanism in advance, not under pressure when someone has already decided to leave.

Tax and NIC: How Partners Are Taxed

The transparency principle is the starting point: the partnership pays no income tax. The SA800 (Partnership Tax Return) shows the firm's total profit and allocates it to partners. Each partner then accounts for their own tax and NIC.

Income tax (2026/27)

Each partner pays income tax at their marginal rate on their profit share (England, Wales and Northern Ireland rates; Scotland sets its own non-savings bands):

• Personal allowance: £12,570 (nil tax)
• Basic rate: 20% on profits from £12,571 to £50,270
• Higher rate: 40% on profits from £50,271 to £125,140
• Additional rate: 45% above £125,140

Class 4 NIC (2026/27)

Each partner calculates Class 4 NIC on their individual profit share:

• 6% on profits from £12,570 to £50,270
• 2% on profits above £50,270

Class 2 NIC was removed from 6 April 2024. Partners with profits at or above the Small Profits Threshold are treated as having paid Class 2 and retain their state-pension entitlement. There is no weekly Class 2 charge to pay.

Self Assessment obligations

Two parallel filing obligations run each year. The nominated partner files the SA800 (Partnership Tax Return) by 31 January following the tax year (online) or 31 October (paper). Each partner files an individual Self Assessment return including SA104 supplementary pages showing their allocated profit share.

Both sets of returns must be in place before HMRC can reconcile the partnership's tax position. Late filing of the SA800 triggers a penalty against the nominated partner personally.

Payments on account

Where a partner's combined income-tax-and-Class-4 liability for a year exceeds £1,000 and less than 80% is collected at source, payments on account (POAs) are required: 50% of the prior year's liability on 31 January, and 50% on 31 July (TMA 1970 s.59A). The first year of trading creates the well-known "double bill": on 31 January after the first tax year, the balancing payment for that year and the first POA toward the following year both fall due at once. Budget for this from day one.

Making Tax Digital for Income Tax

MTD ITSA will apply to partners whose gross income from the partnership exceeds the relevant threshold: £50,000 from 6 April 2026, £30,000 from 6 April 2027, and £20,000 from 6 April 2028. Mixed-member partnerships have specific rules under the MTD framework. See our dedicated guide on MTD for mixed-member partnerships for the detail.

Tax-year basis

From 2024/25, unincorporated businesses including partnerships are taxed on the tax-year basis: profits for the year ending 5 April (or 31 March, treated as equivalent). A 31 March or 5 April accounting year end avoids annual apportionment of two sets of accounts. Alex and Beth in the worked example below adopt a 5 April year end for this reason.

The Joint and Several Liability Risk

This is the structural feature that most distinguishes a general partnership from a limited company or LLP, and it deserves clear treatment before you form one.

Under PA 1890 s.9, all partners are jointly liable for debts and obligations of the firm incurred in the ordinary course of business. "Joint and several" has a practical consequence that catches new partners by surprise: a creditor can pursue any single partner for the full amount of the firm's debt, regardless of that partner's profit share. The targeted partner then has a right of contribution from the others, but must pursue it in separate proceedings. If one partner runs up a business debt and then becomes insolvent, the remaining partners are on the hook for the full amount.

The practical implications are significant:

• Personal assets (home, savings, investments) are at risk if the partnership cannot pay its debts.
• You are exposed to your co-partners' business decisions and conduct.
• Professional indemnity insurance is essential in service partnerships; employer's liability insurance is compulsory under the Employers' Liability (Compulsory Insurance) Act 1969 if the partnership employs staff.
• The liability profile should be assessed honestly at the outset, not after a debt arises.

The liability risk also extends to obligations that are not straightforwardly "debts". Under PA 1890 s.10, the firm is liable for the wrongful act or omission of any partner acting in the ordinary course of business. A negligent act by one partner in the course of the firm's work can give rise to a claim against all partners personally. This is particularly relevant in professional services partnerships (accounting, surveying, law, architecture) where the damage from a negligent act can be large. Professional indemnity insurance is not a legal requirement for a general partnership but in practice should be treated as one.

If the liability exposure is a concern, an LLP (limited liability, registered at Companies House) or a limited company may be more appropriate. See our guide on limited company versus LLP for the comparison. If you are considering incorporating an existing business, see our guide on how to switch from sole trader to limited company for the mechanics.

Worked Example: Alex and Beth, 60/40 Split

Alex and Beth start a management consultancy partnership on 6 April 2026. Alex takes 60% of profits; Beth takes 40%. Both adopt a 5 April year end. Partnership profit for the year ending 5 April 2027: £90,000.

Registration timeline

Event	Date
Partnership starts trading	6 April 2026
Alex (nominated partner) registers partnership with HMRC (SA401)	By 5 October 2027
Alex and Beth each register individually for Self Assessment	By 5 October 2027
First SA800 (partnership return) due online	31 January 2028
First individual SA returns (Alex and Beth) with SA104 pages	31 January 2028
Balancing payment for 2026/27 due	31 January 2028
First payment on account (toward 2027/28)	31 January 2028
Second payment on account	31 July 2028

In practice, both partners should register in September 2027 at the latest, not wait for the 5 October deadline.

Profit allocation

Partnership profit: £90,000. Alex (60%): £54,000. Beth (40%): £36,000. Alex files SA104 showing £54,000 partnership income; Beth files SA104 showing £36,000. Both figures appear on the SA800.

Alex's liability (2026/27, no other income)

Income tax:

• Personal allowance £12,570: nil
• Basic-rate band £12,571 to £50,270 (£37,700 at 20%): £7,540
• Higher-rate band £50,271 to £54,000 (£3,730 at 40%): £1,492
• Total income tax: £9,032

Class 4 NIC:

• £12,571 to £50,270 (£37,700 at 6%): £2,262
• £50,271 to £54,000 (£3,730 at 2%): £75
• Total Class 4 NIC: £2,337

Alex's total liability for 2026/27: £11,369

On 31 January 2028, Alex pays the £9,032 balancing payment plus a first payment on account of £5,684.50 (50% of £11,369). A second payment on account of £5,684.50 follows on 31 July 2028. The 31 January 2028 cash requirement alone is £14,716.50.

Beth's liability (2026/27, no other income)

Income tax:

• Personal allowance £12,570: nil
• Basic-rate band £12,571 to £36,000 (£23,430 at 20%): £4,686
• Total income tax: £4,686

Class 4 NIC:

• £12,571 to £36,000 (£23,430 at 6%): £1,406
• Total Class 4 NIC: £1,406

Beth's total liability for 2026/27: £6,092

Both partners should set aside their estimated tax liability from their first drawings rather than treating the full profit share as available cash. The January payment on account compounds the first-year cash requirement significantly.

VAT, Records and Insurance: The Practical Checklist

• VAT: register when the partnership's combined taxable turnover exceeds £90,000 in any rolling 12 months (VATA 1994). The VAT registration is in the partnership name. Once registered, MTD for VAT is mandatory: digital records and MTD-compatible software are required for all returns.
• Bank account: open a dedicated account in the partnership name. Both partners are typically required as signatories. Keep all business income and expenditure running through this account.
• Records: maintain income records, expenditure receipts, VAT records (if registered), and a written record of the profit-sharing arrangement. Keep everything for at least five years after the 31 January filing deadline for the relevant tax year (TMA 1970 s.12B).
• Insurance: consider professional indemnity insurance for a professional services partnership. Employer's liability insurance is compulsory if the partnership employs staff (Employers' Liability (Compulsory Insurance) Act 1969). Public liability insurance is advisable if the business has client-facing premises or site visits.