Limited Liability Partnerships (LLPs) differ from partnerships, in that the members do not have responsibility for any debts or issues which arise.
With an ordinary partnership, the agreement and the individuals are treated as one entity. Run into debt, and the individuals are personally liable. An LLP is more like a limited company, so the owner’s individual assets are protected, except there are no shares, shareholders or directors.
One partner is not responsible for another’s debt or financial issues, but they agree to a joint responsibility to run the company.
There is a possibility, just like with partnerships, that you can go into business with yourself, using your own limited company. An accountant can give you all the advice and best options.
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Limited Liability Partnership
Sitting somewhere between a partnership and a limited company, LLPs are a good business set up for any businesses who need to keep work and personal accounts separate.
An LLP will have more involvement with Companies House such as submission of Abbreviated Accounts and a Confirmation Statement, whereas a standard partnership only deals with HMRC.
Despite there being hints of a limited company, the tax affairs of an LLP are transparent, so it pays no UK Corporation Tax or Capital Gains Tax. All income is distributed between partners and treated as self-employment income.
They can’t be used for non-profit organisations, which must be limited companies.
Taxes To Pay
Because it is a partnership, there is no tax to be paid on the income itself, but the individual partners will have to pay, as usual. Some taxes which may be involved are:
- Income Tax: Profits you make if you’re self-employed, including from services you sell through websites. Income from a partnership is classed as self-employed income
- VAT: If your company offers services and has customers, you may have to charge VAT on the purchases. Signing up is compulsory if you have a turnover of £85,000, but can be voluntary under this
- Capital Gains Tax: Disposal of a share or membership of the partnership, or any gains made by the LLP, will be taxed
- National Insurance: Class 2 and Class 4 will have to be paid by individuals
What An Accountant Can Do For An LLP
Accountants can provide you with the best online accountancy service for your partnership to use, guide you through how to use it all, and help to automate a lot of the calculating work and ensure you are Making Tax Digital compliant. They can also help with:
- Registration: You must register your LLP with HMRC and Companies House, and an accountant can advise what to include
- Advice: Is an LLP the best set up for you? Would a normal partnership be sufficient or should you move to limited company status?
- Tax Returns: Every individual member will need to file a tax return, and if one is wrong then there may be a chance all of them are. An accountant can file them, and check everything is above board and compliant based on your online company accounts
- VAT: If your LLP must charge VAT, they can advise on how best to deal with this, sign up for you and make the correct deductions which can keep you in line with the law
- Records And Bookkeeping: The accounting records must all be in order to make tax returns easier, and these must be kept for around six years. An accountant could help you choose the best online software for your business, guide you through how to update them or completely take control of it all
- Representation: Should HMRC want to investigate your returns, an accountant can represent your case and deal with all correspondence, freeing your time up to run your business. They can also notify them of any changes, such as membership or address
There is a lot to keep in order running any company, and legal compliance is important to ensure you stay in the clear and face no fines.
While it could be easy to think you can do it all, especially if you’re in a partnership with others and using online accounts, learning about the process and compliance can be a nightmare in itself.
Outsourcing an accountant to help you manage everything, or even just certain aspects, could be the best option for your company. Plus, you will have unlimited access to their service as and when you need it, which could be priceless if you encounter an issue.