Planning your path to Partner

Registering as self-employed

HMRC won’t know your tax status has changed until you tell them.  Self-employed partners should register for self-assessment via form SA401 before 5 October following the end of the tax year in which they became a partner.  Once registered, you’ll file a tax return by 31 January each year and pay tax twice a year - in July and January.

For example, if you become a self-employed partner on 1 April 2025, your first tax return will be for the tax year ending 5 April 2026 which you won’t need to file with HMRC until 31 January 2027. The first tax payment you make will be in January 2027 with a second instalment in July 2027. This means that partners face significant tax payments on 31 January 2027, as they will pay a balancing sum for the 2025/26 tax year as well as a first payment on account for 2026/27. To manage these payments, it is essential to have a robust tax reserving policy—either within the firm or personally—to ensure sufficient funds are set aside.

Profit share vs. drawings

As a self-employed partner, you will typically draw – probably monthly – an agreed sum on account of your anticipated share of profit. The method of allocating profit between partners varies significantly across firms. In many firms, newly appointed partners can expect a combination of a fixed share and a (usually smaller) variable share based on both performance objectives and the firm’s overall financial performance.  

Monthly drawings are usually based only on the partner’s fixed share of profit.  For example, if a partner’s fixed share of profit is £240,000.  They might draw one-twelfth each month (£20,000), from which they will need to set aside a portion for tax (approximately £8,400).  Some firms retain the tax-related portion within the firm – meaning that instead of drawing £20,000 a month, the partner might instead draw around £11,600.

Tax reserving

It is important to remember that the tax liability belongs to the individual rather than to the partnership.  This means that if a partner receives additional income – such as rental income, investment returns, or trust distributions – these will also be included in their tax calculations for January and July. The firm won’t be aware of any non-partnership  income and therefore any tax reserve maintained in the firm may not be sufficient to cover the total tax due.  

As a general rule of thumb, if a partner’s only source of earnings is from their share of partnership profit, maintaining a tax reserve of 42% should be sufficient. For example, for an annual profit share of £240,000, a 42% tax reserve would amount to £100,800. 

This guidance is based on current tax rates, which are subject to change. Individuals should seek professional advice to ensure they have the most up-to-date information and make informed decisions about their tax planning.

If you need any help with your self-employed tax planning or need guidance on any of these areas, please reach out to Claire Watkins or your usual Buzzacott contact, and we’d be happy to help.