Working in partnership? Considering or have already set up a company with at least one other person? Looking for an accountant to look after all your financial needs? Interested in learning more about your tax efficiency and wealth management options to safeguard your future?
If you’ve made your mark in your chosen field and gained a lot of contacts along the way, you and your professional peers could be considering entering into a limited liability partnership (LLP).
What does it mean to be part of an LLP?
An LLP is similar to a normal partnership but its members benefit from reduced personal responsibility. So – unlike sole traders and more straight forward partnerships – the LLP itself and not the individual members is responsible for any business debts.
While this offers more security, it also comes with added complications. Consulting a financial adviser in the early stages can help ensure you meet all the necessary requirements and are fully up to speed with the legal requirements of operating as an LLP.
Starting out
You and your partners will need to register with Companies House and then, once you’ve received your incorporation certificate, you can start operating as an LLP. But, before you do, there are certain things you need to be aware of in order to keep on the proper legal footing and maintain your LLP status. Here’s a top level overview of what you need to do:
- Fill in a partnership tax return to declare the partnership’s income and expenses for the tax year. This includes a partnership statement, showing how profits or losses have been divided among the partners.
- Appoint a ‘nominated member’ to fill in the partnership tax return and send it to HMRC. The assigned person should also make sure that all members of the partnership are given copies of this statement to help them complete their own personal tax returns. Remember though that, while the nominated member is responsible for the partnership tax return, all members are jointly liable for any penalties that result from it being submitted late or incorrectly.
- Display your LLP’s name on the outside of all its offices or other places of business; as well as any business stationery (letters, invoices, receipts and cheques etc). You should also make sure that your LLP’s place of registration, registered number and registered office address are on any letters, order forms and electronic business communications and these details, along with your VAT number and an email address, feature on the company website.
- Keep Companies House informed by submitting an annual return every year so your records are kept up-to-date. You must also make sure you let them know of any changes to partner membership and/or registered office details.
What tax do you need to pay as an LLP?
- Profits are shared among members of an LLP and it’s these individuals – not the LLP – that pay income tax on the profits.Unlike limited companies, LLPs don’t have to pay corporation tax.
- It’s important that each member of the partnership registers as self-employed with HMRC. This means each of you will need to include details of any profits on your individual self assessment tax returns (SATRs) each year. Self-employed partners are also responsible for paying their own NI contributions.
- It is possible for LLP members to be companies or other LLPs, rather than individuals. If this is the case, companies that are LLP members will have to pay corporation tax on their profits from the LLP and should include the relevant details on their company returns.
- If the LLP has, or expects to have, turnover of more than £70,000 per year, it will need to charge VAT to its customers and pass this onto HMRC.
- LLPs with employees must collect and pay income tax and NICs from them, which means operating a PAYE system.
If this is you and you’d like to talk through your options with one of our qualified accountants tel: 08000 325 326
