Limited Liability Partnerships

Fundamentals

You may choose a Limited Liability Partnership (LLP) through which to operate your business. A LLP is similar to an ordinary partnership but also has some elements of a limited company. As with a limited company a LLP is a separate legal entity and must be registered with Companies House.

Whilst the regime surrounding a limited company is clear and largely understood a LLP is less so but it does have more flexibility. In an LLP one partner is not responsible or liable for another partner’s negligence or misconduct.

As with partnerships members of a LLP are self-employed and liable to tax and National Insurance Contributions on the share of the profits.

To help you understand what is required to operate your business as a Limited Liability Partnership (LLP) we have listed the tax and accounting responsibilities.

A limited liability partnership (LLP) is similar to an ordinary partnership – in that a number of individuals or limited companies share in the risks, costs, responsibilities and profits of the business.

The difference is that liability is limited to the amount of money they have invested in the business and to any personal guarantees they have given to raise finance. This means that members have some protection if the business runs into trouble.

It is important to note that changes to the tax treatment of income received by members of a LLP were introduced with effect from 6 April 2014 . Members that meet the three conditions listed below are treated as employees. Both the LLP and the LLP member will be liable to Class 1 NIC. The conditions are as follows:

Condition A: It is reasonable to expect at least 80% of the members pay is fixed, or if variable, then without reference to, or in practice unaffected by, the LLP’s overall profit or loss

Condition B: The member has no significant influence over the affairs of the LLP

Condition C: The members’ contribution to the LLP is less than 25% of the ‘disguised salary.’

Subject to the member not be classed as an employee the following applies:

Set-up

  • Each member needs to register as self-employed.
  • There is no restriction on the number of members, but at least two must be designated members – the law places extra responsibilities on them.
  • LLPs must register at Companies House.
  • It’s a good idea to draw up a written agreement between the members. For further advice, consult an accountant or solicitor.

Management and Raising Finance

  • Usually the members manage the business, but can delegate responsibilities to employees.
  • Members raise money out of their own assets and/or with loans.

Records and Accounts

  • Each individual member must make annual self-assessment returns to HM Revenue & Customs (HMRC).
  • All LLPs must file accounts with Companies House.
  • An annual reminder letter will be sent to the LLP a few weeks before the due date requesting they download the form from the Companies House website. It needs to be completed and returned to Companies House with the appropriate fee.

Profits

  • Each member takes an equal share of the profits, unless the members agreement specifies otherwise.

Tax and National Insurance

  • The profits of a member of an LLP are taxable as profits of a trade, profession or vocation and members remain self-employed and subject to Class 2 and 4 NIC.

Income tax and National Insurance

As a limited liability partnership (LLP) each partner has to:

  • Complete a Self-Assessment Tax Return every year and
  • pay Class 2 and Class 4 NIC.

Companies House Filing

As a limited liability partnership (LLP) you have to:

  • Complete an annual return every year and
  • supply a signed set of accounts to Companies House every year

VAT

You may chose to register your business for VAT. Businesses with a turnover of £81,000 (from 1 April 2014) are obligated by HMRC to be VAT registered.

As a VAT-registered business you have to complete a VAT return form for each tax period, usually every three months. This details how much VAT you:

  • have charged your customers;
  • have been charged by your suppliers; and
  • owe HMRC or are owed by them.

You will be sent your VAT return form towards the end of your tax period. You must return the form and payment (if appropriate), normally no later than one month after the end of your tax period.

PAYE deductions and National Insurance

If your business pays more than £1,500 per month to HMRC you must make monthly payments of PAYE and NIC.

If your business pays less than £1,500 per month to HMRC, you may make payments of PAYE  and NIC every three months. Use form P31 to tell HMRC you want to pay every three months.

After the end of each tax year, you will have to complete the following forms:

  • P60 End-of-Year Summary (for each employee)
  • P11D or P9D Return of Expenses and Benefits (for each employee)
  • P11D(b) Employer Declaration of Return of Expenses and Benefits

IMS takes care of all of the required tax and accounting responsibilities, leaving you to focus on the things that are really important.