Partnership Tax Planning Opportunities

Partnerships, including traditional partnerships and Limited Liability Partnerships (LLPs), can offer tax planning opportunities due to their unique structure and flexibility. Here are some tax planning opportunities available with partnerships:

1. Profit allocation: Partnerships and LLPs allow for flexibility in profit allocation among partners, which can benefit tax planning. Partners can agree on a profit-sharing ratio that reflects their circumstances and tax positions.
2. Income splitting: If a partner’s spouse or family member contributes to the business, they can be made a partner, allowing income splitting. This strategy can reduce the overall tax burden by utilizing each partner’s personal allowances and lower tax bands.
3. Capital allowances: Partnerships can claim capital allowances on qualifying assets used in the business, such as equipment, vehicles, or fixtures. These allowances can be used to reduce the partnership’s taxable profits, thus lowering the tax liability for the partners.
4. Pension contributions: A partnership can make pension contributions on behalf of the partners, which can be tax-efficient. These contributions can be deducted from the partnership’s taxable profits, reducing the partners’ tax liabilities.

There is minimal difference in difference between simple partnerships and LLPs in terms of tax compliance. Both structures are treated as transparent for tax purposes, meaning the partners are taxed individually on their share of partnership income. However, LLPs have a separate legal identity and offer limited liability protection for their members, which is unavailable in a simple partnership.

Using a car in the partnership’s name: A partnership can purchase, lease or own a vehicle used for business purposes. The partnership can claim capital allowances and deduct running costs related to the car as business expenses. However, if a partner uses the vehicle for personal purposes, this BIK is not subject to income tax for the individual partner. 

In summary, partnerships offer various tax planning opportunities, such as flexible profit allocation, income splitting, capital allowances, and pension contributions. The tax compliance for simple partnerships and LLPs is broadly similar. It is essential to consult HMRC guidance and seek professional advice to ensure compliance with tax rules and regulations.

You can call us to discuss your business tax compliance with our specialist tax advisors.