Qualifying partnerships are required to prepare accounts as if they were companies, rather than partnerships. It is a specialist area of accounting where expertise and a comprehensive understanding of the business structure are crucial.
In this post, we begin with a brief description of qualifying partnerships and then provide a simple overview of their accounting requirements.
What is a qualifying partnership?
A partnership formed in any UK nation is treated as a qualifying partnership (QP) if each of the members (or each of the general partners, if it is a limited partnership) is one of the following (or a comparable undertaking in a non-UK jurisdiction):
- a limited company
- an unlimited company, each of whose members is a limited company
- a Scottish partnership that is not a limited partnership, each of whose members is a limited company
- a Scottish partnership that is a limited partnership, each of whose general partners is a limited company
So, if a general partnership has only corporate members, then the partnership is a QP. If all of the general partners in a limited partnership are bodies corporate, then the limited partnership is a QP.
These rules do not extend to limited liability partnerships (LLPs), because LLPs are not subject to the same regulations and cannot, therefore, be treated as qualifying partnerships.
Accounting requirements of qualifying partnerships
A qualifying partnership must prepare, audit, and file its accounts as if it were a company, rather than a partnership.
This means that the accounts must comply with the requirements of the Companies Act 2006 and the Partnerships (Accounts) Regulations 2008, as amended by the Companies and Partnerships (Accounts and Audit) Regulations 2013.
A QP cannot simply prepare accounts for its investors using the accounting principles set out in its partnership agreement. Instead, the accounts have to comply with International Financial Reporting Standards (IFRS) or UK Generally Accepted Accounting Practice (GAAP).
The accounting requirements are as follows:
- prepare statutory financial statements, a members’ report or a general partners’ report, and a strategic report (unless they are defined as small) within nine months of their year end
- have the financial statements audited, unless exempt under the Companies Act on the grounds of being dormant, small, or a guaranteed subsidiary
- make the financial statements and reports publicly available
The QP’s accounts can cover any period up to 18 months, which may be stated in the partnership agreement. If the agreement makes no such specification, the members must draw up the QP’s accounts for each 12-month period ending on 31 March every year.
If a QP is a limited partnership, the general partners must also attach a copy of the partnership’s accounts to their own accounts when they file them with Companies House, where they will be made publicly available. This requirement does not extend to the limited partners of the QP.
However, the members of a qualifying partnership are exempt from preparing partnership accounts if the QP is dealt with on a consolidated basis within the audited group accounts of either:
- a member of the QP that is established under the law of any UK nation
- a parent undertaking of any such member of the QP
In these circumstances, the audited group accounts should be prepared and filed in accordance with the requirements of the Companies Act or UK-adopted International Accounting Standards. There must also be a note to the group accounts disclosing the exemption.
Publication of accounts
Qualifying partnership accounts are subject to publication requirements, with the exception of those dealt with on a consolidated basis in group accounts.
If none of the QP’s members are required to file their accounts with Companies House, or the equivalent of Companies House in another EEA state, the accounts must be made available at one of the following:
- the QP’s principal place of business in the UK (e.g. its registered office address or head office)
- any member’s (or general partner’s) principal place of business or head office in the UK, if the QP does not have a UK principal place of business
- a UK address nominated by the members of the QP, if the QP and none of its members (or general partners) have a principal place of business or head office in the UK
The accounts may be inspected by any person, without charge and during business hours, at the nominated UK address.
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Preparing accounts for a qualifying partnership is a complicated undertaking that requires accounting expertise and a full understanding of the business structure. We recommend consulting a specialist for professional advice and guidance.
We hope that you have found this post helpful. If you have any questions, please leave a comment below and we’ll come back to you.