A Limited Liability Partnership (LLP) is a legal business entity and in general law, is regarded as a corporate body- just like any other company. It must submit its accounts and an annual return to Companies House and ideally, there should be a LLP agreement in place.
However, for tax purposes, it is treated much like a partnership and each member is therefore assessed on their share of the profits. Each member must submit their own tax return and they are subject to income tax and Class 2 and Class 4 National Insurance. The LLP itself does not pay tax but it does have to submit a tax return –exactly like an ordinary partnership.
The main advantages of a LLP are that its members have limited liability (like a company) but the flexibility of a partnership when it comes to their profit sharing arrangements. In the past, a LLP could also be more tax efficient; however, since Corporation Tax rates have come down so dramatically, such an advantage has been completely eradicated.
If you would like to discuss the different trading options in more detail, please feel free to contact us.
By Jo Nockels
Disclaimer: Advice shared in this blog is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this forum, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.