The Digital record keeping for business: income tax document reveals ‘requirements imposed under this Schedule on a partnership are to be met by a nominated partner’.

Through a nominated partner, partnerships will fulfil the obligations of Making Tax Digital, maintaining digital records and providing regular updates on behalf of all the partners.

Each partner’s estimated income would be based on the profit allocation as reported to HMRC. As a result, each partner will not need software, maintain their own digital records or regularly update HMRC unless they have other business interests.

HMRC’s impact assessment showed 400,000 partnerships will be affected.

Under some circumstances, HMRC may nominate the partner, while the legislation also provides the power for regulations to be made about the nominations.

It also provides a similar power allowing HMRC to make regulations about elections and withdrawal of elections by ‘excluded partnerships’. For partnerships with a turnover above £10m, Making Tax Digital for business is deferred until 2020.

Trustees of a charitable trusts and trustees of an ‘exempt unauthorised unit trusts’ are exempt, as are the underwriting business of a member of Lloyd’s, shares held in real estate investment trusts, and partnerships participating in open-ended investment companies.

Although the government has not confirmed the exact thresholds for partnerships, it is likely that the largest partnerships with fee income in excess of £10m will not have to report under Making Tax Digital as their tax affairs would be too complex for the system. This would be in line with plans for the largest businesses.

The legislation also provides that profit derived from certain activities is exempt, unless the partnership elects to participate in reporting through Making Tax Digital.

Information to be reported includes calculating profits, losses or income of the business for the tax year. Alongside that, information about receipts and expenses, any information relevant to establishing, in relation to each partner chargeable to income tax, the amount in which the partner is chargeable for income tax for the tax year, or the amount of income tax payable by the partner is to be reported.

Information in relation to any disposal of partnership property during the tax year is to be reported though Making Tax Digital, along with any particulars which would be required if the partnership were liable to tax on a chargeable gain accruing on the disposal.

Read the draft legislation here.