Here is your guide to LLPs (Limited Liability Partnerships)
LLPs may be seen as a hybrid between limited liability companies and traditional partnerships. They offer the limited liability available to limited company shareholders combined with the tax regime and flexibility available to partnerships. LLPs were introduced in 2001 as an alternative to the traditional partnership model.
An LLP is a business structure that can be set up by 2 or more people. The main difference between a LLP and a partnership is the level of financial responsibility of the partners. The number of partners is not limited but at least two have to be â€˜designated membersâ€™. The ‘designated members’ are responsible for filing annual accounts.
Just as with a limited company the LLP model protects its membersâ€™ assets. Thus limiting their liability to however much they have invested in the business and any personal guarantees they may have given when raising loans. Traditional partnerships place the full burden of business debts upon the partners. LLPs place reduced financial liability upon the partners which is a more desirable option for many people.
However it doesnâ€™t give you the same tax advantage. As in an ordinary partnership, the membersâ€™ share of profit is taxed as income. Each member has to register with HMRC as self-employed. LLPs also have to register at Companies House and there should be a membersâ€™ agreement stating what share of the profit each member should receive.
Annual accounts need to be submitted to Companies House within 9 months of the financial year end. This may differ to the tax year but your year end can be adjusted to be brought in line with the tax year.
Partnership tax returns should be submitted to HMRC by the 31st January following the end of the tax year in which the financial year end falls.
Self Assessment tax returns should be submitted to HMRC by the 31st January for all the partners (regardless of the profits taken).
Unlike other income situations, all partners of a LLP must register for Self Assessment, regardless of whether they receive a share in the profits of the business.