Supporting the self-employed Since 2004

How to set up in business as a partnership in 2026

set up a partnership

A partnership offers a simple way to get started if two or more people wish to go into business together.

It can be easier to set up than a limited company, but there are important differences when it comes to tax, liability and what happens if one partner wants to leave the business.

In an ordinary business partnership, each partner pays tax on their share of the profits and can be personally liable for the business’s debts. A written partnership agreement is strongly recommended, particularly where substantial money, assets or long-term commitments are involved.

In this guide, we look at the main aspects of setting up and running a business partnership in 2026.

What’s in this guide

What is a business partnership?

A partnership is formed when two or more people decide to go into business together.

In England and Wales, a partnership isn’t a distinct legal entity in its own right. It is a vehicle which links two or more individuals in a simple business structure.

In Scotland, a partnership has a separate legal personality.

As a partnership, you don’t need to deal with Companies House or take on the responsibilities associated with being a company director.

If you do want your new business to be a distinct legal entity, you can form a limited company instead.

The partners in a business partnership are usually self-employed individuals. However, a limited company can also be a partner.

Your liability as a partner

Partners share the responsibility for running the business. They share the fruits of their work and any losses.

Partners are personally liable for any debts incurred in operating the business.

In an ordinary partnership, liability is generally joint and several. This means that a creditor may be able to pursue one partner for the full amount of a partnership debt, rather than just that partner’s share.

This means that if the partnership cannot pay its debts, each partner may be personally liable for the losses.

Ordinary partnerships do not provide limited liability. Different rules apply to limited partnerships and limited liability partnerships (LLPs).

Types of partnership

The UK has several forms of partnership. The most common are:

  • Equity partners – contribute capital and share profits and losses.
  • Salaried partners – receive a salary but may not contribute capital. Depending on the arrangement, some salaried partners may be treated as employees for tax purposes.
  • Sleeping partners – do not take part in running the business but may invest capital.
  • Limited partnerships – these are registered at Companies House and must have at least one general partner with unlimited liability. A limited partner’s liability is generally limited to the amount invested.
  • Limited liability partnerships (LLPs) – a separate legal entity where members normally have limited liability. These are also registered at Companies House.

If a partner dies, resigns or becomes insolvent, the effect on the partnership depends on the circumstances and on what has been agreed between the partners.

Without a suitable partnership agreement, events like these may bring the partnership to an end.

Although most people enter partnerships with the best of intentions, problems can arise later on.

This can happen if one partner pursues a different course for the business or wants to leave the partnership.

For this reason, we recommend you hire a solicitor to draw up a partnership agreement, which typically includes details on:

  • How the business is to be run.
  • How much each partner invests in the business.
  • What share each partner has in the business.
  • How the partners work together.
  • Non-competition clauses.
  • Intellectual property rights.
  • How to deal with changes in the partnership.
  • Dispute resolution processes.

If you don’t have a deed of partnership, the Partnership Act of 1890 may apply if there’s a problem.

However, this won’t necessarily protect you, so make sure you’re covered before you start your business.

When choosing your partners, think carefully about whether you share the same goals, work ethic and financial approach. Without alignment, problems can emerge quickly.

If you do not have a deed of partnership, the law may treat your arrangement as a partnership at will. This means a partner can usually end the partnership by giving notice.

This can create real financial pressure for the remaining partners.

Read our guide to why you need a partnership agreement.

Choose a name for your partnership

When choosing a name for your partnership, you should read up on several guidelines (and legal considerations).

  • Don’t choose a name that is ‘offensive’ or contains any ‘sensitive words’. Examples include terms such as ‘Council’, ‘Chartered’, ‘Authority’, or other words that imply the business has a special status when it does not.
  • Avoid using trademarked terms in your business name, such as ‘Microsoft computer services’.
  • As sole traders and ordinary partnerships are not incorporated, you may not use the terms ‘ltd’, ‘limited’, ‘plc’, etc.
  • You must include the partnership’s name and the names of its partners on any official paperwork, such as invoices.

There is no central database of partnerships and sole traderships in the UK, so choosing a unique business name isn’t always possible. You don’t need a unique business name, as long as you follow the rules above.

Search the web for your proposed business name – particularly in your industry sector and local area.

Read this useful official advice on choosing a name for your partnership.

Register the partnership with HMRC

When you form a partnership, one partner is designated as the ‘nominated partner’. This partner is responsible for registering the partnership with HMRC and submitting its annual tax return.

You can register with HMRC online here, or, if you can’t use the online service, submit the paper form SA400, which you can access here.

You need to apply for a Government Gateway ID to complete this process.

The partnership should receive a Unique Taxpayer Reference (UTR) via post within a few weeks.

When you register the new business, have the following information to hand:

  • The name of the partnership
  • The name of the nominated partner
  • Details of each member of the partnership
  • The nature of the business
  • The partnership’s business address

Next, we look at how partnerships are taxed in more detail.

Partnerships – Tax matters

Partnerships, like sole traders, submit annual tax returns. However, the partnership doesn’t pay any tax or National Insurance on the business’s profits.

Instead, the individual partners pay tax and NICs on their share of the partnership’s profits. This is the amount of money remaining after deducting expenses from your turnover.

As a result, individual members of a partnership must also register and complete their own Self Assessment tax returns.

Both the partnership and its members must normally register for Self Assessment by 5 October following the end of the tax year in which the business started trading.

For example, if the partnership starts trading in 2026/27, the registration deadline is normally 5 October 2027.

Both the partnership tax return and the individual’s tax returns must normally be submitted online to HMRC by 31 January following the end of the tax year. Any Income Tax and NICs owed by the individual members must also generally be paid by the same date.

Income tax and National Insurance

Partners pay income tax on their share of the partnership’s profits.

For the 2026/27 tax year, Income Tax rates in England, Wales and Northern Ireland are as follows:

Most individuals pay no tax on the first £12,570 of income – the Personal Allowance, although this is reduced for people with higher incomes.

After this, you pay the following rates on your total taxable income for the tax year. This includes income from the partnership, as well as any other taxable income.

  • 20% within the basic rate band.
  • 40% within the higher rate band.
  • 45% on taxable income over £125,140.

Scottish taxpayers have different Income Tax rates and bands.

For the 2026/27 tax year, the main self-employed NIC rules are as follows:

  • Class 2: if your share of profits is at least £7,105, Class 2 is treated as paid for benefit purposes, and you normally pay nothing. If your profits are below £7,105, you may be able to pay voluntary Class 2 contributions of £3.65 per week.
  • Class 4: 6% on your share of profits between £12,570 and £50,270, and 2% on profits above £50,270.

Read more about how sole trader tax works here.

Leaving a partnership

Without a written agreement, a partner can usually leave by giving notice, sometimes with little or no advance notice. They may also demand repayment of any capital they invested, which could put the business at risk.

A partnership agreement sets out rules on how notice should be given, how the leaving partner’s share will be valued, and how any buy-out will be financed. It can also prevent introducing outside parties without consent.

It is sensible for partners to take out life insurance on each other so that, if one partner dies, the surviving partners can use the payout to buy their deceased partner’s share of the business without financial strain.

Accountants, accounting software, licences, banking and insurance

Alongside the formalities of setting up a partnership, there are other tasks to attend to.

Hire an accountant (optional)

We recommend you talk to an accountant before you set up the business. They can advise you on the best way to set up the partnership and explain the tax implications for each partner.

If you hire an accountant at the start, they can guide you through the HMRC registration process and help you avoid potential problems or errors.

Get accounting software (recommended)

These days, most business owners use online accounting software. It makes dealing with your accounts, invoices, expenses and tax returns a breeze.

Popular brands include Xero, Sage and ClearBooks.

You can read more in our guide to accounting software for the self-employed.

Set up a bank account for the partnership (recommended)

Although there is no legal requirement, it makes sense to open a business bank account for the partnership.

This means that all business transactions are processed through a separate business account and are not combined with the partners’ transactions.

Read our guides to business bank accounts and, specifically for partnerships, joint business bank accounts.

Make sure your business is adequately insured (recommended)

Some types of insurance are mandatory, such as employers’ liability (in most cases). Others may be required if you carry on certain types of trade, or if they’re required by any contracts you sign.

Read our overview of business insurance for the self-employed for more details.

Do you need any specific licences to run your business? (mandatory in some cases)

Very few businesses are unaffected by red tape – rules and regulations. Make sure you know which ones apply to you and your new business.

Use this search facility from the Department of Business and Trade to see if you need to apply for one of over 400 specific licences to carry on your trade.

Also see our guide on memberships and registrations you might need, depending on your trade.

You might also like:

  1. Sole trader insurance – what’s required, recommended & worth having?
  2. Joint business bank accounts – are they right for your partnership?
  3. The risks of setting up a partnership without an agreement
  4. Do you need a separate business bank account?
  5. Sole trader vs limited company – pros and cons explained