Partnerships in the UK are a business structure where two or more people share ownership, profits, and usually liability, without necessarily forming a company. The UK recognizes four distinct versions: general partnerships (GPs), limited partnerships (LPs), limited liability partnerships (LLPs), and Scottish partnerships. Each type has different rules on personal liability, registration, and how its profits are taxed by His Majesty’s Revenue and Customs (HMRC). In March 2025, there were roughly 161,000 partnerships registered in the UK.

Below, we’ll explain how each structure works, how HMRC taxes partnership income differently from company profits, and what value-added tax (VAT) obligations look like once a partnership starts trading.

Key takeaways

• GPs make each partner personally liable for business debts. LLPs cap that liability at each member’s contribution.

• HMRC treats many partnerships as tax transparent so profits pass through to individual partners instead of getting taxed at the business level.

• A partnership has to register for VAT as a single entity once its taxable turnover exceeds the registration threshold, regardless of the partners’ individual VAT statuses.

What is a partnership in the UK?

A partnership is defined as two or more people running a business together without forming a company. In many versions of this structure, there’s no separate legal entity so the partners split the business’s profits, losses, and liability.

What are the different types of UK partnerships?

Each UK partnership structure comes with its own rules on liability, registration, and management.

Here are the different types:

• GPs: This is the default structure when two or more people run a business together without registering anything formally. Each partner carries unlimited liability so personal assets are at risk if the business accumulates debt. There’s no registration with the UK government’s Companies House, but the partnership still has to register with HMRC for tax purposes.

• LPs: This structure needs at least one general partner with unlimited liability and at least one limited partner whose liability is capped at their capital contribution. Limited partners generally can’t take part in day-to-day management without losing that limited status, and LPs have to register with Companies House.

• LLPs: An LLP gives each member limited liability while keeping the tax treatment of a traditional partnership. LLPs count as separate legal entities, much like companies so they have to file annual accounts and a confirmation statement with Companies House.

• Scottish partnerships: A Scottish partnership has a separate legal personality, which means it’s an entity that’s distinct from its partners. GPs and LPs registered in England, Wales, or Northern Ireland don’t offer that distinction. This changes how the Scottish partnership holds property and how it can sue or be sued in its own name, although the tax treatment for income tax purposes stays broadly consistent with that of partnerships in the rest of the UK.

Choosing between these structures usually starts with a single question: how much personal risk are the partners willing to carry? A GP costs nothing to set up and asks for no filings beyond HMRC registration, but that simplicity comes at a price. Every partner’s house, savings, and other personal assets can be used to satisfy the business’s debts, and one partner’s mistake can create liability for everyone else in the partnership.

An LLP trades some of that simplicity for protection. Members still get taxed as if they’re self-employed, but their personal liability is generally capped at whatever they’ve invested or agreed to contribute. That’s partly why LLPs tend to be popular among accountants, solicitors, and consultants, where the work carries professional risk. LPs are in a narrower niche and are typically used where investors seek limited exposure without taking part in day-to-day management.

How does HMRC tax UK partnerships?

HMRC doesn’t tax partnerships as businesses in their own right. Instead, it treats them as tax transparent. That means the profits pass straight through to the individual partners, who then pay tax on their shares.

How the partnership return works

Each year, the partnership completes form SA800, the partnership tax return, and reports total income, expenses, and profit for the business as a whole. That return doesn’t create a tax bill by itself. Every partner must report their share of the profit separately, either through the SA104 partnership pages attached to a personal Self Assessment return or through a corporation tax return if the partner is itself a company. Individual partners pay income tax at their marginal rates on their shares, plus Class 4 National Insurance contributions on profits above the Lower Profits Limit of £12,570 per year.

Where LLPs diverge from the default

LLPs get the same transparent treatment by default, which is a big reason businesses choose an LLP over incorporation. But there’s a trade-off: HMRC’s salaried member rules can reclassify certain LLP members as employees for tax purposes if they fail specific tests that cover variable pay, influence over the business, and capital contribution. A member who takes a fixed salary regardless of the LLP’s performance and hasn’t put meaningful capital into the business has no real say in management. When that happens, the LLP has to account for Pay As You Earn (PAYE) on that member’s income and pay employer National Insurance, just as it would for a regular employee.

A firm that brings on junior members with fixed pay packages, expecting to treat them as self-employed partners for tax purposes, may find that HMRC takes a different view. Getting the classification wrong after the fact means that the firm has to pay employer National Insurance and back payments plus interest.

Should you choose an LLP or a limited company for UK partnerships?

A limited company is a business structure that’s legally separate from its owners who hold shares rather than a partnership interest. Its owners (shareholders) have their liability capped at what they’ve invested. A limited company pays corporation tax on its profits: currently 25% for profits over £250,000 and 19% for profits of £50,000 or less, with marginal relief tapering the rate in between. Shareholders then pay dividend tax when profits get distributed to them, which creates two tax layers on the same money.

An LLP skips that second layer entirely. Profits get taxed once at the member level through income tax and National Insurance. That single tax layer tends to favor LLPs for professional partnerships, such as law firms and accountancy practices, where profit is mostly distributed to working partners each year rather than reinvested.

Limited companies tend to fit better when a business wants to retain earnings inside the company rather than distribute everything or when it’s planning to raise external investment through share allotments. Investors are usually more comfortable with a share structure than with LLP membership interests since equity stakes and shareholder rights are better understood in that context.

LLPs file accounts and a confirmation statement at Companies House, just as limited companies do. Financial information becomes public either way. Neither structure offers more privacy than the other on that front.

What VAT obligations apply to UK partnerships?

A partnership registers for VAT as a single entity, separate from the personal VAT status of any individual partner. If the partnership’s taxable turnover exceeds the UK VAT registration threshold of £90,000 in a rolling 12-month period, it has to register with HMRC and start charging VAT on taxable supplies.

Registration requirements

Once it’s registered, the partnership needs to submit VAT returns, generally quarterly, through Making Tax Digital–compatible software. That involves calculating output VAT on sales, reclaiming input VAT on business expenses, and paying the difference to HMRC, or claiming a refund if input VAT exceeds output VAT for that period.

Scottish partnerships

Scottish partnerships register for VAT the same way, as the partnership entity rather than through individual partners, despite having a separate legal personality.

Challenges

Things get more complicated once a partnership sells into other markets. Different products and services can carry different VAT rates or exemptions, invoices need specific information to be valid for VAT purposes, and errors in VAT calculation can trigger HMRC compliance checks. A partnership that sells goods or services online, particularly one that works with a mix of B2B and B2C customers, has to get the VAT treatment right on each transaction, not just at year-end.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard, or using our powerful application programming interface (API).

Stripe Tax helps you monitor your obligations and alerts you when you exceed a tax registration threshold based on your Stripe transactions. It can also register to collect tax on your behalf in the US, automate US filings in the Dashboard, and manage global filings through trusted partners. Stripe Tax automatically calculates and collects sales tax, VAT, and goods and services tax (GST) on:

• Digital goods and services in all US states and over 100 countries

• Physical goods in all US states and 42 countries

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration, or add tax collection with the click of a button in the Stripe Dashboard.

• Register to pay tax: If you need to register for sales tax in the US, let Stripe manage your tax registrations. You’ll benefit from a simplified process that prefills application details—saving you time and simplifying compliance with local regulations. If you need help registering outside of the US, Stripe partners with Taxually to help you register with local tax authorities.

• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.

• Simplify filing: Stripe Tax automates US filings in the Dashboard, powered by TaxJar. For global filings, Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business. US tax filings can be automated in the Stripe Dashboard, powered by TaxJar.

Learn more about Stripe Tax, or get started today.