- You've probably heard of,
or done some research on a limited liability partnership,
also known as an LLP
but are not yet sure whether this legal structure
is right for you and your business.
So if you need to do,
or are here to do a little more research,
then stay tuned.
In this video,
we will cover what exactly
is a limited liability partnership?
How is an LLP taxed in the UK?
Five at key attractions of using an LLP
over a limited company,
and finally which is right for your business,
an LLP or limited company?
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A limited liability partnership or LLP
is a type of corporate body
that is created and registered at Companies House,
similar to a traditional limited company.
It's a relatively new concept
as it was first introduced in 2001
under the Limited Liability Partnerships Act of 2000.
Now it has proven very popular with professional businesses
such as accountancy practices
solicitors and investment managers.
The general idea of an LLP is that
it combines some of the key features of a limited company
with those of a traditional partnership.
A LLP must have at least two members
and there is no upper limit on this.
It also is possible for a traditional limited company
to be a member of an LLP.
Where this is the case they are known as corporate members.
A LLP is a separate legal body from its members,
much like a traditional limited company
is from its shareholders.
And as a result offers its members limited liability.
Profits made by the business are distributed to members.
The exact split is detailed in the members agreement
which is a private document
that lays out all the key details regarding the LLP.
As the name suggests,
LLP offers its members limited liability
and the LLP itself is considered
a separate legal entity to its members
and as such the members are only liable
for a predetermined amount
which should be detailed in the LLP's members agreement.
If the LLP was to ever run into financial difficulty,
then the member's personal assets
will be somewhat secure compared
to those operating by the traditional partnership route
where the partners are personally liable
for the partnership debts
and any legal claims made against it.
This is why you will see many professional firms,
such as accountancy and law practices,
now operating under an LLP structure
so that partners enjoy the grip protection
from both legal action
and the misconduct of other partners in the firm.
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An LLP is described as tax transparent.
Well, what does this actually mean?
Let me explain that with an example.
ABC LLP is a limited liability partnership
and to the year to 31st of March,
the company made 90,000 pounds in profits before tax.
The LLP has three equal individual members.
So each member will take a one third share in the profits.
In this case, 30,000 pounds each.
Unlike a traditional limited company,
there is no corporation tax to pay on the profits.
The members each receive their share of the profits
and are liable to pay income tax
and self-employed class two
and class four national insurance
on their split of these profits.
This is the same tax regime
as a traditional partnership and has to be declared
in each individual members self-assessment return.
The LLLP itself has to prepare annual accounts
and what is known as an LP partnership tax return
and submit these to Companies House
and the HMRC respectively, every year.
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So you may be thinking
why would you even consider an LLP
over a traditional limited company
or even a partnership structure.
After all a traditional limited company is very common.
Well here's five reasons
why an LLP could be attractive to you.
Number one, a member of an LLP
is protected against negligence
or misconduct from another member of the LLP.
Now, this is a key advantage
over a traditional limited company
and is a reason why LLPs have proven to be so popular
amongst professional services business,
such as law firms.
Number two, a corporate entity
such as a traditional limited company
can also be a member of the LLP.
Now done properly,
this allows for greater control
and tax planning opportunities.
Number three, traditional limited companies
have shareholders and it's not so easy
to add and remove shareholders.
In contrast, members can be easily added
or removed from the LLP,
allowing for agility and greater flexibility.
Number four, there are no taxable benefits
in kind on individual members
so there's no requirement for a P11D.
Any non-business element of expenses
is added back to taxable profits.
And number five,
an LLP is considered to give its members
a greater degree of privacy
compared to that offer to shareholders in a limited company.
The limited company's articles of association
are on public record at Companies House
with details such as share splits available
for all to see.
The LLP will detail profit splits in its members agreement,
which is not filed at Companies House
and not on public record.
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There is no simple answer to this particular question
as is definitely no standard fit.
Your situations and objectives all need to be considered
before you can make an informed decision.
And that is the key, making an informed decision.
And to help you do this,
we've done a free decision aid tool
that will help you think about and plan through
some of the questions you may have
and should ask yourself before deciding upon
which structure to use.
Click on the link
on the description box below to download this.
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I hope this video has helped you learn
some of the basics on a limited liability partnership
and take you one step closer to knowing your numbers.
As always, let me know in the comments,
your thoughts on today's video,
or if there are any topics you'd like
to see us cover in the future.
Finally be sure to like and subscribe
as is really does help us to get our content out there.
This is Tony Dhanjal for the Accounting & Tax Academy.
Thanks for tuning in.
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