Working for a LLP and tax?
Discussion
Hi all,
I have been sent some details of a job where the company are registered as an LLP (Limited Liability Partnership). As I understand it, this means you are classed as self employed and lose some of the benefits of working for a normal company such as redundancy etc. I also understand because of this arrangement then you pay a reduced NI contribution and tax, is that true? If so how do I work out what my net income would be? Can you also claim some of the other benefits associated with being self employed?
Has anybody worked for a company registered in this way before and are there any issues with it? It's the first time I have come across this. The company say you still get paid holidays and paid sick days etc, but no redundancy payout or paternity leave, but that does not both me.
Cheers for any info
I have been sent some details of a job where the company are registered as an LLP (Limited Liability Partnership). As I understand it, this means you are classed as self employed and lose some of the benefits of working for a normal company such as redundancy etc. I also understand because of this arrangement then you pay a reduced NI contribution and tax, is that true? If so how do I work out what my net income would be? Can you also claim some of the other benefits associated with being self employed?
Has anybody worked for a company registered in this way before and are there any issues with it? It's the first time I have come across this. The company say you still get paid holidays and paid sick days etc, but no redundancy payout or paternity leave, but that does not both me.
Cheers for any info
mybrainhurts said:
That only aplies if you are a partner.
If you're employed by them, you're a normal PAYE employee.
An LLP is not an awful lot different to a standard old fashioned non-limited partnership. I spent most of my working life working as an employee within partnerships. Employees are taxed the same no matter what type of entity they work for.If you're employed by them, you're a normal PAYE employee.
Thanks for the replies, here is some info from the document they sent to me, which confuses me somewhat:
"As a member, you drawings are taxed as if you are self-employed resulting in you paying a lower rate of personal National Insurance than an employee and therefore the money paid into your bank account annually which will be higher. "
"As a Member, you will pay Class II and Class IV National Insurance contributions instead of Class I"
"Provision will be made in the monthly accounts of the LLP for the estimated amount of tax liability on the above. Your tax will be paid by the LLP as it falls due out of funds held by the LLP. This is provided that you cooperate with the tax accountants appointed by the LLP.
You will be allocated a profit share sufficient to cover the tax and National Insurance on the drawings made so that you will neither owe, or be owed, tax or National Insurance."
"As an LLP member, you will not be self-employed in the sense of owning your own company. However, as a self-employed member, you will need to complete an annual tax return. We have arranged with our company accountants to calculate the individual tax returns of all members after the partnership tax return has been completed. This means that you do not need to worry about this – it will be calculated for you, with your drawings from the LLP being treated as your primary earnings."
"As a member, you drawings are taxed as if you are self-employed resulting in you paying a lower rate of personal National Insurance than an employee and therefore the money paid into your bank account annually which will be higher. "
"As a Member, you will pay Class II and Class IV National Insurance contributions instead of Class I"
"Provision will be made in the monthly accounts of the LLP for the estimated amount of tax liability on the above. Your tax will be paid by the LLP as it falls due out of funds held by the LLP. This is provided that you cooperate with the tax accountants appointed by the LLP.
You will be allocated a profit share sufficient to cover the tax and National Insurance on the drawings made so that you will neither owe, or be owed, tax or National Insurance."
"As an LLP member, you will not be self-employed in the sense of owning your own company. However, as a self-employed member, you will need to complete an annual tax return. We have arranged with our company accountants to calculate the individual tax returns of all members after the partnership tax return has been completed. This means that you do not need to worry about this – it will be calculated for you, with your drawings from the LLP being treated as your primary earnings."
salsoul said:
Thanks for the replies, here is some info from the document they sent to me, which confuses me somewhat:
"As a member, you drawings are taxed as if you are self-employed resulting in you paying a lower rate of personal National Insurance than an employee and therefore the money paid into your bank account annually which will be higher. "
"As a Member, you will pay Class II and Class IV National Insurance contributions instead of Class I"
"Provision will be made in the monthly accounts of the LLP for the estimated amount of tax liability on the above. Your tax will be paid by the LLP as it falls due out of funds held by the LLP. This is provided that you cooperate with the tax accountants appointed by the LLP.
You will be allocated a profit share sufficient to cover the tax and National Insurance on the drawings made so that you will neither owe, or be owed, tax or National Insurance."
"As an LLP member, you will not be self-employed in the sense of owning your own company. However, as a self-employed member, you will need to complete an annual tax return. We have arranged with our company accountants to calculate the individual tax returns of all members after the partnership tax return has been completed. This means that you do not need to worry about this – it will be calculated for you, with your drawings from the LLP being treated as your primary earnings."
I run my company as an LLP"As a member, you drawings are taxed as if you are self-employed resulting in you paying a lower rate of personal National Insurance than an employee and therefore the money paid into your bank account annually which will be higher. "
"As a Member, you will pay Class II and Class IV National Insurance contributions instead of Class I"
"Provision will be made in the monthly accounts of the LLP for the estimated amount of tax liability on the above. Your tax will be paid by the LLP as it falls due out of funds held by the LLP. This is provided that you cooperate with the tax accountants appointed by the LLP.
You will be allocated a profit share sufficient to cover the tax and National Insurance on the drawings made so that you will neither owe, or be owed, tax or National Insurance."
"As an LLP member, you will not be self-employed in the sense of owning your own company. However, as a self-employed member, you will need to complete an annual tax return. We have arranged with our company accountants to calculate the individual tax returns of all members after the partnership tax return has been completed. This means that you do not need to worry about this – it will be calculated for you, with your drawings from the LLP being treated as your primary earnings."
If you are going to be employed by the LLP then you just get payed PAYE like you would with any other company - but that is not what is being offered.
If you are going to be a Member of the LLP (think partner or shareholder) then while you could be employed, you will also just get money out as Member's distribution of income (think dividend. Indeed, as a member, there is no need to be employed by the LLP and nor is it desireable to be so. The amount you get will be laid out in the LLP's partnership agreement (which is a private document)
LLP's pay no corporation tax - all the profits get distributed to the members who then pay personal tax (and class 4 NI) on their share of the profits. Members get no "dividend" entitled to lower tax rates as SHareholders of Ltd co's do.
So in the case of a Ltd company, the Company pays Corp tax but then you get your divis out at low tax rates
With an LLP, the company pays no tax but you pay normal rates of income tax and NI on your drawings. The NI is Class 4 largely.
The difference is largely the NI - but there isn't too much in it in reality.
In the case of my company we are not employed by the LLP and are registered as self employed. We take all the money out (pretty much as & when it comes in) and then pay tax as any self employed bod would twice a year. This means I've just paid the balancing pament on my income from the 2007/8 tax year - thanks for the interest free loan Gordon!
Indeed, every time I get money from the company I just chuck a sensible percentage into my Fiirst Direct Offset Mortgage account so not only is the money an interest free loan its been hard at work reducing my Mortgage payments
.When tax time comes I then just draw what I need from the mortgage account.
What it looks like you are being offered is that the LLP will withhold your tax for you & then pay it "so that you don't have to worry about it".
Better in your bank/paying down your mortgage than in their bank I would say!
I.
Edited by Iain328 on Monday 9th February 19:39
Do they mention IR 35 anywhere?
This looks very like some sort of attempt to engage you on a basis that isn't as an ordinary employee. They are taking you on as a form of "partner" and are actually describing to you that what they pay you is not wages in the normal sense, but a portion of your share of the profits of the partnership.
Partners are taxed on the profit of the business - divided up between the various partners. Each partner is liable for the tax and NI on HIS sllocation of this profit share. He is NOT taxed on the money he actually "Draws" from the partnership.
The arrangemnent you are describing sounds like a very artificial construct to me. You need to thread very carefully here.
You must also remember that if you are taken on as a fellow partner (they keep calling you a "member" but legally, in partnerships you only have "partners"), you become personally liable for (potentially) ALL the liabilities of the entire partnership - although this may be why it has been set up as an LLP.
What do they say about this in the "contract" they are offering you?
What type of role are you undertaking with this organisation?
This looks very like some sort of attempt to engage you on a basis that isn't as an ordinary employee. They are taking you on as a form of "partner" and are actually describing to you that what they pay you is not wages in the normal sense, but a portion of your share of the profits of the partnership.
Partners are taxed on the profit of the business - divided up between the various partners. Each partner is liable for the tax and NI on HIS sllocation of this profit share. He is NOT taxed on the money he actually "Draws" from the partnership.
The arrangemnent you are describing sounds like a very artificial construct to me. You need to thread very carefully here.
You must also remember that if you are taken on as a fellow partner (they keep calling you a "member" but legally, in partnerships you only have "partners"), you become personally liable for (potentially) ALL the liabilities of the entire partnership - although this may be why it has been set up as an LLP.
What do they say about this in the "contract" they are offering you?
What type of role are you undertaking with this organisation?
Iain328 said:
salsoul said:
Thanks for the replies, here is some info from the document they sent to me, which confuses me somewhat:
"As a member, you drawings are taxed as if you are self-employed resulting in you paying a lower rate of personal National Insurance than an employee and therefore the money paid into your bank account annually which will be higher. "
"As a Member, you will pay Class II and Class IV National Insurance contributions instead of Class I"
"Provision will be made in the monthly accounts of the LLP for the estimated amount of tax liability on the above. Your tax will be paid by the LLP as it falls due out of funds held by the LLP. This is provided that you cooperate with the tax accountants appointed by the LLP.
You will be allocated a profit share sufficient to cover the tax and National Insurance on the drawings made so that you will neither owe, or be owed, tax or National Insurance."
"As an LLP member, you will not be self-employed in the sense of owning your own company. However, as a self-employed member, you will need to complete an annual tax return. We have arranged with our company accountants to calculate the individual tax returns of all members after the partnership tax return has been completed. This means that you do not need to worry about this – it will be calculated for you, with your drawings from the LLP being treated as your primary earnings."
I run my company as an LLP"As a member, you drawings are taxed as if you are self-employed resulting in you paying a lower rate of personal National Insurance than an employee and therefore the money paid into your bank account annually which will be higher. "
"As a Member, you will pay Class II and Class IV National Insurance contributions instead of Class I"
"Provision will be made in the monthly accounts of the LLP for the estimated amount of tax liability on the above. Your tax will be paid by the LLP as it falls due out of funds held by the LLP. This is provided that you cooperate with the tax accountants appointed by the LLP.
You will be allocated a profit share sufficient to cover the tax and National Insurance on the drawings made so that you will neither owe, or be owed, tax or National Insurance."
"As an LLP member, you will not be self-employed in the sense of owning your own company. However, as a self-employed member, you will need to complete an annual tax return. We have arranged with our company accountants to calculate the individual tax returns of all members after the partnership tax return has been completed. This means that you do not need to worry about this – it will be calculated for you, with your drawings from the LLP being treated as your primary earnings."
If you are going to be employed by the LLP then you just get payed PAYE like you would with any other company - but that is not what is being offered.
If you are going to be a Member of the LLP (think partner or shareholder) then while you could be employed, you will also just get money out as Member's distribution of income (think dividend).
LLP's pay no corporation tax - all the profits get distributed to the members who then pay personal tax (and class 4 NI) on their share of the profits. Members get no "dividend" entitled to lower tax rates as SHareholders of Ltd co's do.
So in the case of a Ltd company, the Company pays Corp tax but then you get your divis out at low tax rates
With an LLP, the company pays no tax but you pay normal rates of income tax and NI on your drawings. The NI is Class 4 largely.
The difference is largely the NI - but there isn't too much in it in reality.
In the case of my company we are not employed by the LLP and are registered as self employed. We take all the money out (pretty much as & when it comes in) and then pay tax as any self employed bod would twice a year. This means I've just paid the balancing pament on my income from the 2007/8 tax year - thanks for the interest free loan Gordon!
Indeed, every time I get money from the company I just chuck a sensible percentage into my Fiirst Direct Offset Mortgage account so not only is the money an interest free loan its been hard at work reducing my Mortgage payments
.When tax time comes I then just draw what I need from the mortgage account.
What it looks like you are being offered is that the LLP will withhold your tax for you & then pay it "so that you don't have to worry about it".
Better in your bank/paying down your mortgage than in their bank I would say!
I.
Edited by Iain328 on Monday 9th February 18:54
Eric Mc said:
Do they mention IR 35 anywhere?
This looks very like some sort of attempt to engage you on a basis that isn't as an ordinary employee. They are taking you on as a form of "partner" and are actually describing to you that what they pay you is not wages in the normal sense, but a portion of your share of the profits of the partnership.
Partners are taxed on the profit of the business - divided up between the various partners. Each partner is liable for the tax and NI on HIS sllocation of this profit share. He is NOT taxed on the money he actually "Draws" from the partnership.
The arrangemnent you are describing sounds like a very artificial construct to me. You need to thread very carefully here.
You must also remember that if you are taken on as a fellow partner (they keep calling you a "member" but legally, in partnerships you only have "partners"), you become personally liable for (potentially) ALL the liabilities of the entire partnership - although this may be why it has been set up as an LLP.
What do they say about this in the "contract" they are offering you?
What type of role are you undertaking with this organisation?
There is nothing wrong with LLP's - most accountants and Law firms are now using this as a structure. You are correct that tax is paid on a share of the profits (as opposed to actual drawings) but the two are, in reality very closely linked.This looks very like some sort of attempt to engage you on a basis that isn't as an ordinary employee. They are taking you on as a form of "partner" and are actually describing to you that what they pay you is not wages in the normal sense, but a portion of your share of the profits of the partnership.
Partners are taxed on the profit of the business - divided up between the various partners. Each partner is liable for the tax and NI on HIS sllocation of this profit share. He is NOT taxed on the money he actually "Draws" from the partnership.
The arrangemnent you are describing sounds like a very artificial construct to me. You need to thread very carefully here.
You must also remember that if you are taken on as a fellow partner (they keep calling you a "member" but legally, in partnerships you only have "partners"), you become personally liable for (potentially) ALL the liabilities of the entire partnership - although this may be why it has been set up as an LLP.
What do they say about this in the "contract" they are offering you?
What type of role are you undertaking with this organisation?
You are wrong that LLP's do have members, not partners.
The whole point of an LLP is that it is a Limited Liability partnership so the members are NOT personally liable as you would be as a Partner in a normal partnership - that's the whole point of the thing!
Edited by Iain328 on Monday 9th February 19:03
But do they normally take on what would normally regarded as employees as "instant" partners?
The whole idea of LLPs was to allow businesses which traditionally have been restricted to operating as unlimited liability partnerships (accountants, solicitors, doctors etc) to obtain some of the benefits previously only available to those who operated through limited companies.
I know that sometimes partnerships have "associate parthers" who CAN be paid through normal payroll channels with sometimes an element of profit share as well. However, it is very strange for someone to be offered "partner" status from the word go. Most associates have to earn that position over a number of years with the final "promotion" being to full "equity" partner status - eventually.
The whole idea of LLPs was to allow businesses which traditionally have been restricted to operating as unlimited liability partnerships (accountants, solicitors, doctors etc) to obtain some of the benefits previously only available to those who operated through limited companies.
I know that sometimes partnerships have "associate parthers" who CAN be paid through normal payroll channels with sometimes an element of profit share as well. However, it is very strange for someone to be offered "partner" status from the word go. Most associates have to earn that position over a number of years with the final "promotion" being to full "equity" partner status - eventually.
Eric Mc said:
But do they normally take on what would normally regarded as employees as "instant" partners?
The whole idea of LLPs was to allow businesses which traditionally have been restricted to operating as unlimited liability partnerships (accountants, solicitors, doctors etc) to obtain some of the benefits previously only available to those who operated through limited companies.
I know that sometimes partnerships have "associate parthers" who CAN be paid through normal payroll channels with sometimes an element of profit share as well. However, it is very strange for someone to be offered "partner" status from the word go. Most associates have to earn that position over a number of years with the final "promotion" being to full "equity" partner status - eventually.
No reason why not - if they want him badly enough. Doubtless the partnership agreement will also have a mechanism to get rid of him if needs be - come to think of it he should read that & understand what the severence terms are.The whole idea of LLPs was to allow businesses which traditionally have been restricted to operating as unlimited liability partnerships (accountants, solicitors, doctors etc) to obtain some of the benefits previously only available to those who operated through limited companies.
I know that sometimes partnerships have "associate parthers" who CAN be paid through normal payroll channels with sometimes an element of profit share as well. However, it is very strange for someone to be offered "partner" status from the word go. Most associates have to earn that position over a number of years with the final "promotion" being to full "equity" partner status - eventually.
To round this off, LLPs have Members and Designated Members (there must be two DMs). Sometimes there is also a Chairman of the LLP (who is also a DM). Members are entitled to profit share as laid out in the partnership agreement, but its not a democracy - the DM's call the shots and the agreement governs what everyone is entitled to.
There is no way that the LLP can fiddle things so that it witholds cash that he has to pay tax on (ie. there won't be a huge disparity between profit share and actual cash drawings). If they do withold cash then they will be witholding it from all members in equal shares and he will be entitled to whatever he is entitled to while he remains a member of the LLP.
Its a perfectly safe structure to work in as long as you are happy with your rights under the agreement. A lot more companies than you might think are now using it as well.
I.
Edited by Iain328 on Monday 9th February 19:37
Eric is right - members of the LLP are taxed on their share of the profits (or accrue tax losses)- regardless of their drawings. LLPs are look through entities - in that they are ignored for tax purposes - they do not pay tax themselves - the profits are taxed on the members in the ratio set out in the partnership agreement.
Very common useage.
I have seen a lot of private equity set up this way - especially in property companies. These things are often set up so that the large long term gains are taxed as capital gains - 10% effective rate - compared to 40% income tax.
Very common useage.
I have seen a lot of private equity set up this way - especially in property companies. These things are often set up so that the large long term gains are taxed as capital gains - 10% effective rate - compared to 40% income tax.
salsoul said:
Thanks for the info guys, that was taken from a document they sent me and not a contract. I will have a good read through the contract when they send it.
Cheers
Its the partnership agreement you need to see.....that's what defines your rights as a Member of the LLP & you should have to sign it if you take the thing on.Cheers
Iain328 said:
Famous Graham said:
Aren't there issues with benefits should you be made redundant/lose your job if you're paying lower NI? Seem to remember someone on here found out he couldn't claim JSA as a result.
You still pay plenty of NI - you pay Class 4 NI on your share of the profitsI'll have a hunt for the post on here from the guy who experienced it first hand (a friend of mine mentioned it the other day too, but I've got nothing written down and it's obviously second hand now).
Here we go - lingus halfway down the first page : http://www.pistonheads.com/gassing/topic.asp?h=0&a...
Although he doesn't reveal whether there were other factors such as savings or owning a property.
Edited by Famous Graham on Tuesday 10th February 00:12
Famous Graham said:
Iain328 said:
Famous Graham said:
Aren't there issues with benefits should you be made redundant/lose your job if you're paying lower NI? Seem to remember someone on here found out he couldn't claim JSA as a result.
You still pay plenty of NI - you pay Class 4 NI on your share of the profitsI'll have a hunt for the post on here from the guy who experienced it first hand (a friend of mine mentioned it the other day too, but I've got nothing written down and it's obviously second hand now).
[i] Class 2 and Class 4 contributions are paid by self employed persons. Class 2 contributions are payable at a flat weekly rate and entitle the contributor to all contributory benefits except contribution based jobseekers allowance and the earnings related supplement to retirement pension. People who become self employed must notify NICO and make arrangements to pay their Class 2 contributions. Payment can be made by monthly direct debit or quarterly in arrear. Those who pay quarterly receive a bill from NICO showing the amount owed.
Class 4 contributions are payable at a fixed percentage on profits from a trade or profession charged to income tax under self assessment; they carry no entitlement to benefits of any kind. The contributions are collected by NICO. The provisional half yearly payments made on 31 January and 31 July under self assessment include Class 4 contributions based on the previous year's figures with any balancing adjustment made in the return on the following 31 January. If Class 4 contributions are paid late, interest is charged. Amounts owed by an insolvent in respect of unpaid Class 4 contributions are included in the proof(s) of debt submitted by HMRC Insolvency Claims Handling Unit.[/i]
Class 22 is £2.20 a week & class 4 is 8% upto £40Kish. Class 1 paid if you are on PAYE is 11%
Edited by Iain328 on Tuesday 10th February 00:19
The level of benefits accruing to a sewlf-employed individual are based purely on their Class 2 NI contributions.
The OP needs to fully understand his legal position if he goes ahead with this arrangement - both from a tax and NI point point of view and from a liability point of vieww (nothwithstanding the fact that the entity is an LLP rather than an ordinary partnership).
I wonder if this organisation actually has normal employees?
The OP needs to fully understand his legal position if he goes ahead with this arrangement - both from a tax and NI point point of view and from a liability point of vieww (nothwithstanding the fact that the entity is an LLP rather than an ordinary partnership).
I wonder if this organisation actually has normal employees?
I received the contract and LLP agreement in the post today. From what I can gather it appears all tax and NI contributions are dealt with by the company accountants on my behalf. It mentions a monthly Class 2 NI contribution but nothing about Class 4.
It also appears that the drawings that I receive every month are the equivalent of a normal salary being taxed at 10% rather than the higher tax brackets. So it appears my take home is substantially higher than what I expected it to be, but I will confirm that with them.
The LLP agreement is total legal mumbo jumbo so I shall read it when I can concentrate and understand what it all means.
It also appears that the drawings that I receive every month are the equivalent of a normal salary being taxed at 10% rather than the higher tax brackets. So it appears my take home is substantially higher than what I expected it to be, but I will confirm that with them.
The LLP agreement is total legal mumbo jumbo so I shall read it when I can concentrate and understand what it all means.
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