Taking on a partner vs employee

In this lesson

1. 0:00 Employee versus partner comparison
2. 0:15 Tax treatment for employees
3. 0:50 Company car benefits for employees
4. 1:27 Tax treatment for partners
5. 2:03 Partner salary and profit allocation
6. 2:36 Company car benefits for partners

About this lesson

This lesson compares salary treatment, National Insurance obligations, payroll requirements, and company car implications under both structures, helping you advise correctly on the most tax-efficient route for different situations. When you employ someone, the business deducts salary and employer National Insurance as expenses, operates payroll through PAYE, and handles employment reporting. The employee pays income tax on a receipts basis and contributes employee National Insurance. If you provide a company car, the business claims full capital allowances with no private use restriction, plus running costs, whilst the employee faces a taxable benefit based on CO2 emissions. A partnership works fundamentally differently because partners are treated as self-employed individuals sharing profits, not employees. Any "salary" allocated to a partner isn't deductible — it's simply a profit share agreed in advance. Partners pay Class 4 National Insurance and self-assessment tax on their share of all partnership profits. Company cars for partners attract private use restrictions like sole traders face, and running costs are only deductible for the business element. Understanding this distinction is crucial for Strategic Business Leader and Advanced Taxation scenarios where you need to evaluate whether bringing someone in as a partner or employee makes better commercial and tax sense.

Duration: 3m