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HMRC internal manual

Partnership Manual

Partners: overview

There are few restrictions on who can be a partner. Both natural and artificial persons, such as companies, can be partners.

 

It is not a requirement of a partnership that each member is physically capable of performing the full range of the activities of the partnership business, but each must be capable of performing a part of the activities, even if that role is only to provide finance. A partner who plays no active part in the business but has contributed capital is often described as a ‘sleeping partner’.

 

There may be occasions when a person is described as a partner but is, in actual fact, an employee of the business. For example, the title may be given for prestige. ‘Salaried partner’ is the term usually used to describe such an employee. It is important to be aware, however, that the term may also be used to describe a person who is an actual partner, rather than an employee. For example, the term may be used to describe a partner who receives a first share of the firm’s profits. Whether or not a person is a partner or an employee will depend on the facts. More detailed guidance is available at PM132100.

 

Spouses and civil partners can enter into partnership with each other. Sometimes this is done for tax planning reasons as it may be advantageous for a person to share their business profits with his or her spouse to maximise the use of their personal allowances and basic rate tax bands. HMRC is unlikely to challenge such an arrangement. See PM132200 for further guidance.