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HMRC internal manual

Partnership Manual

Introduction to Partnerships and Partnership Taxation: overview of how partnerships are taxed

Although the partnership has no tax liability, a partnership return (SA800) is required in order to determine the partnership profits on which the partners will be taxed. The partnership return allows all matters relating to the calculation of profits and their allocation between partners to be dealt with centrally. Detailed guidance on how the Self Assessment regime applies to partnerships can be found at PM20000 onwards. Separate tax computations will be required where the partnership has mixed membership, such as individual and company members or UK resident and non-UK resident members. The implications of this are covered in detail at PM40000 onwards.

Each partner must declare their share of the partnership profits on their own tax return. The share of profits that a partner enters in their own return must correspond with the allocations shown in the partnership return. However, in exceptional cases of genuine disagreement between the partners over the allocation of profits, partners should enter, as their share of partnership profits, the amount they consider to be correct and advise HMRC that they have done so by making an entry in the white space notes section of the return to show:

  • the profits as allocated in the partnership statement,
  • a deduction (or addition) of the disputed amount, and
  • an explanation about why they think the profit allocated to them in the partnership statement is wrong.

There is further guidance on this at EM7025.