Partnership, but as two sole traders?

Torby

I appreciate this may be a stupid question, but I've browsed the forums and I can't see this being addressed (which makes me think I may be stupid in asking...DOH!)

Is it possible to start a business as described, where there are two of us selling our services and the income generated going into one a/c, but for the purposes of tax etc, being treated as individual self employed persons.

Part of my reasoning is, the equipment used will be purchased on an individual basis and presumably be offset as capital allowances for the individual yet used collectively on the projects. One of us may from time to time splash out on more expensive items as part of that business but we feel that as the expense is borne by that one person, he should get any relevant allowances.

Basically is it possible to have one name and bank a/c for the business, profits (initially if any) equally split and be taxed as individuals each with their own allowances and expenses etc?

Examples of business:

A musical duo, each buys his own equipment, yet receives payment for the "act" and splits 50/50

A video company, again each buys his own equipment, yet payment is made to the "company" on a project basis and again split 50/50


Told you it might sound like a stupid question, mind you, now I've written it down....it seems sensible enough

windswept

yes it is absolutely possible, me and my hubby are in partnership and self employed , plus being both employed as well, which makes the tax returns very interesting, we will have to fill in: employees forms, one each, self employment, one each and one partnership form for the business. we have registered with hmrc as self employed in partnership, the hmrc website is very helpful by they way. we have a joint business bank account and have joint business registration with ebay and paypal, as well as our merchant bank account that allows us to take payments by cc.online and in person. hope this helps you. cheers. helen. also, you can split the partnership any way you want, we will have an 80/20 split , me being the larger as I do all the work:rotfl: and because my hubby is close to the higher tax bracket from his job.

Kilty_2

I don't think this would be legal since one person is taking all of the income and the other nothing.

Even if you did declare what you recieved properly on your tax return, HMRC would definately be suspicious I think.

Why not register as a partnership where the profits are split 50/50 anyway?

windswept

you dont register the split in a partnership, you just declare the split on the tax return , a partnership does not have to be 50-50, nor is it just for two people. I do the majority of the business so I get the larger % , perfectly legal, I was told this by the tax office. Kilty, I have re-read your post and it makes no sense at all.

Torby

thanks for that (Helen?) have I got it right that basically what I've queried is possible except we have to form a legal partnership (bit wary of the cost of that having read previous threads) or at least a partnership based on trust....lol....for the purposes of carrying out a business?

I dont believe we'll ever get to the stage where one has to buy the other out, or the firm/company whatever you want to call it will incur any debt so trust isn't an issue as such, I would have thought it would be easier if we both worked together with a business name....cos most work will involve the two of us and profits simply split and if we do our own tax returns we would both claim our own allowances etc....now for the next problem NI contributions....think we may just have to visit one of the governments start up schemes...oh boy....is this complicated

windswept

you do NOT have to form a legal partnership, we haven't , all we have done is registered with hmrc as self employed in partnership, with our business name, and away we went. as for n.i. contributions, if your earnings are likely to be low to start with, you can get a certificate of exception, we have . I can really recommend that you do a free tax workshop with your local tax office, you will get invited when you register, they are really useful and explain everything fully. we also bought the domain names for our business and also similar sounding names too because you never know if someone will try to copy you or steal your name. just another thought , don't be persuaded into forming a ltd. company without lots of good advice, we were almost talked into it by an accountant, and were luckily stopped by advice on the uk business forums. if you are not going to be making huge sums then all it means is extra work and expense.

Kilty_2

The original post asked whether you could be two individually self employed people without being registered as a partnership.

I pointed out that you need to register as a partnership with HMRC.

What's the problem?

Astaroth

I personally would check with your solicitor or accountant.

Certainly not an expert in these matters but I would imagine that it is possible for 2 sole traders to form a strategic partnership for the purposes of profit sharing without forming the psuedo legal entity that a full partnership entails.

As an example on a slightly different scale... RBS and Tesco formed a strategic partnership to launch Tesco Personal Finance.... Tesco does and pays for all the promo work and RBS administers it all and then profits are shared between the two parties

martindow

Everyone is taxed individually. You will draw money from the partnership and this goes onto your own tax return along with any other income.

In the examples you quote, each of you could rent or sell your equipment to the partnership. I would suggest that you draw up a partnership agreement formally setting out how it will operate and how the profit is to be divided between you. You never know what the future holds and although it may seem unnecessary at the moment it will be useful if there were ever to be a problem between you or you wanted to dissolve the partnership.

It would be a good idea to go to an accountant for some advice. Most of them offer free half hour consultations. Go with a list of specific questions so that you ask everything within the half hour. There's nothing to stop you going to several if you want a second opinion or think of further questions.

buglawton

Each of you should issue half of the Invoices and use them as the basis for Income tax assesment on an indiviual basis, likewise with business purchases.

The 2 separate tax returns should not be linked up in any way or there is the risk of the total business profit being assessed on one lump and this will attract a higher tax rate.

windswept

If the op is in a partnership, they will get a PARTNERSHIP TAX RETURN as well as individual ones, so of course they will be linked. why would they pay more tax as partners? they will only pay tax as self employed, either 50/50 or however they make the split.