Trading as a partnership

By Tolley
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The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Trading as a partnership
  • Introduction
  • Registering for VAT
  • VAT consequences of trading as a partnership
  • Contributions to partnerships
  • Disposing of a share in a partnership
  • Lloyd’s syndicates

This guidance note provides an overview of the VAT implications affecting businesses that trade as a partnership.

Introduction

The Partnership Act 1890, s 1(1) (subscription sensitive) provides the following definition of a partnership:

  • 1)“Partnership is the relation which subsists between persons carrying on a business in common with a view of profit.
  • 2)But the relation between members of any company or association which is-
    • a)registered under the Companies Act 2006, or
    • b)Formed or incorporated by or in pursuance of any other Act of Parliament or letters patent, or Royal Charter

is not a partnership within the meaning of this Act.”

De Voil Indirect Tax Service V2.110 (subscription sensitive)

A partnership is an unincorporated association in which the agreement between the parties is such that the relationship between themselves and third parties is governed by the Partnership Act.

VATDSAG04050

The existence of a partnership is a matter of fact and usually has the following elements:

  • there must be a business
  • the business must be carried on by two or more persons carrying on a business in common with a view to making a profit
  • the persons share any net profits and losses arising from the business activities
  • the parties have the power individually, by actions or words, to legally bind other members of the firm in relation to its dealing with third parties

In Scotland a partnership is a legal person distinct from the partners who compose it. See VATDSAG04350 for more information on Scottish partnerships.

From a VAT perspective the partnership itself will be treated as the taxable

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