Limited Liability Partnership Services

What does LLP stand for? LLP stands for limited liability partnership and it’s a type of business structure which offers a cross between a limited company and an unincorporated partnership.

Legally, an LLP is treated like a “legal person” or “body corporate” but HMRC tax it as if it were an unincorporated partnership.

Choosing the structure of an LLP means partners effectively pay tax at the rate of employees or the self-employed.

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As with an unincorporated partnership, an LLP is not responsible for the payment of any taxes based upon the profit it makes.

When an LLP’s profitability has been determined, that profit is then split between its members. Members are then responsible for paying the tax on these profits via a self assessment form. Tax is payable on the share of profits and not on how much a member has taken in ‘wages’ from the LLP. The rules surrounding the payment of wages and tax can be complicated, especially for salaried LLP members – please contact Black and White Accounting for more information about this.

As with other types of business structure, profitability is the amount which remains after all allowable expenses have been subtracted from the turnover of the LLP, subject to any further allowances or reliefs.

The key advantage of an LLP is that if there are changes in the partners on a business, there is no Capital Gain crystallised on the ‘sale’ of the share in the partnership, unlike a limited company, which can make them very attractive to business who undergo consistent changes in ownership.

he taxation dynamics of an LLP, where members are individually responsible for tax payments based on their share of profits, can be intricate, especially for salaried LLP members. Navigating these complexities often benefits from the expertise of a knowledgeable self-assessment accountant, and this holds true for understanding nuances like the treatment of wages. For more comprehensive insights into LLP taxation, interested parties are encouraged to reach out to Black and White Accounting.T

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The key pros of an LLP include:

• Limitation of liability so members’ personal assets are protected, unless they do not fulfil their legal obligations;
• Constant changes in ownership can take place without creating a capital gain, unlike limited companies. It is therefore well suited;
• LLPs can be owned by companies as part of a group structure; a limited company requires at least one director who must be a ‘real’ person;
• Like (unincorporated) partnerships, there is flexibility in profit share amongst the partners, subject to the partnership agreement. There can also be different levels of membership with different levels of profit sharing and the designated member.

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The key cons of an LLP include:

• LLPs are fully transparent for tax purposes and taxed the same way as (unincorporated) partnerships, with profits taxed as income. There are also fewer opportunities for tax planning that limited companies;
• Partners must disclose incomes in full and cannot choose the levels to distribute to the owners, unlike limited companies;
• Like limited companies, you have more of your information in the public domain (although this can be restricted to a minimum) about Members and the LLP Accounts; and
• LLPs have a high administrative burden, like limited companies, and start to trade within a year of registration, or be struck-off.

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