Partnership vs LLP
Discussion
Hi Guy's,
Just hoping for some general advice here, I shall be officially starting a company with a close(and trusted) freind shortly and I was weighing the odds of Partnership vs LLP, a quick bit of back ground on the business and partners in question to help aid any advice:
- Company will be run in addition to our everyday jobs(both earning similar salary of £35k a year)
- Forcasted Turnover of £72k a year(if we do over achieve, it will not be over £82k as we would like to avoid VAT registration for as long as viably possible)
- Forcasted net profit of £30k a year.
- We have been dabbling since last August so these figures are based on relistic data, we have so far managed to turn £350 into £5000, which is our start up amount.
Now I have been doing research into the whole Partnership vs Limited Liability Partnership and I can't see much difference between the two, bar the limited liability of the LLP and the accounts needing to be submitted to Companies House, surely there must be cons to the LLP that I am missing as at the moment, the LLP seems to be a no-brainer.
Any help or advice would be seriously appreciated.
Thanks
Just hoping for some general advice here, I shall be officially starting a company with a close(and trusted) freind shortly and I was weighing the odds of Partnership vs LLP, a quick bit of back ground on the business and partners in question to help aid any advice:
- Company will be run in addition to our everyday jobs(both earning similar salary of £35k a year)
- Forcasted Turnover of £72k a year(if we do over achieve, it will not be over £82k as we would like to avoid VAT registration for as long as viably possible)
- Forcasted net profit of £30k a year.
- We have been dabbling since last August so these figures are based on relistic data, we have so far managed to turn £350 into £5000, which is our start up amount.
Now I have been doing research into the whole Partnership vs Limited Liability Partnership and I can't see much difference between the two, bar the limited liability of the LLP and the accounts needing to be submitted to Companies House, surely there must be cons to the LLP that I am missing as at the moment, the LLP seems to be a no-brainer.
Any help or advice would be seriously appreciated.
Thanks
Marc p said:
Eric Mc said:
Is there a reason why you don't seem to be considering a more "normal" Limited Company?
Because we don't want the double taxation of having to pay 20% on company profits before we take a wage ourselves.Or, at the very least, talk to an accountant.
Marc p said:
Eric Mc said:
Is there a reason why you don't seem to be considering a more "normal" Limited Company?
Because we don't want the double taxation of having to pay 20% on company profits before we take a wage ourselves.Marc p said:
Eric Mc said:
Is there a reason why you don't seem to be considering a more "normal" Limited Company?
Because we don't want the double taxation of having to pay 20% on company profits before we take a wage ourselves.If you are a standard rate taxpayer then there is no tax to pay on the dividend. If you are a higher rate taxpayer then you pay the difference between standard rate tax and your tax rate, so you will not be paying double taxation.
And there is no NI on dividends either.
If you are operating in a partnership - whether an old fashioned unlimited liability partnership or a modern LLP, the partnership is not taxed. What is taxed is the partners' share of the profits.
So, if the partnership made a profit of (say) £100,000 (ignoring personal amounts drawn by the individual partners), then each partner will pay full income tax and Class 4 NI on their share of the £100,000. If the partnership sharing ratio is 50:50, then they will each pay Income Tax and NI on £50,000. Some of that tax will more than likely be at 40%.
The OP needs a better understanding of the way taxes are paid in partnerships and limited companies before they can make an informed decision as to what the right course of action is for his circumstances.
Be aware that HMRC has taken a distaste to some of the tax avoidance methods being used in LLPs so you could find that the tax advantages you thought you were getting may not materialise.
If you are operating in a partnership - whether an old fashioned unlimited liability partnership or a modern LLP, the partnership is not taxed. What is taxed is the partners' share of the profits.
So, if the partnership made a profit of (say) £100,000 (ignoring personal amounts drawn by the individual partners), then each partner will pay full income tax and Class 4 NI on their share of the £100,000. If the partnership sharing ratio is 50:50, then they will each pay Income Tax and NI on £50,000. Some of that tax will more than likely be at 40%.
The OP needs a better understanding of the way taxes are paid in partnerships and limited companies before they can make an informed decision as to what the right course of action is for his circumstances.
Be aware that HMRC has taken a distaste to some of the tax avoidance methods being used in LLPs so you could find that the tax advantages you thought you were getting may not materialise.
Eric Mc said:
And there is no NI on dividends either.
If you are operating in a partnership - whether an old fashioned unlimited liability partnership or a modern LLP, the partnership is not taxed. What is taxed is the partners' share of the profits.
So, if the partnership made a profit of (say) £100,000 (ignoring personal amounts drawn by the individual partners), then each partner will pay full income tax and Class 4 NI on their share of the £100,000. If the partnership sharing ratio is 50:50, then they will each pay Income Tax and NI on £50,000. Some of that tax will more than likely be at 40%.
The OP needs a better understanding of the way taxes are paid in partnerships and limited companies before they can make an informed decision as to what the right course of action is for his circumstances.
Be aware that HMRC has taken a distaste to some of the tax avoidance methods being used in LLPs so you could find that the tax advantages you thought you were getting may not materialise.
Many thanks for your responses Eric, they are helpful, I feel as though I have not provided enough info though, which is where some of the confusion is coming from.If you are operating in a partnership - whether an old fashioned unlimited liability partnership or a modern LLP, the partnership is not taxed. What is taxed is the partners' share of the profits.
So, if the partnership made a profit of (say) £100,000 (ignoring personal amounts drawn by the individual partners), then each partner will pay full income tax and Class 4 NI on their share of the £100,000. If the partnership sharing ratio is 50:50, then they will each pay Income Tax and NI on £50,000. Some of that tax will more than likely be at 40%.
The OP needs a better understanding of the way taxes are paid in partnerships and limited companies before they can make an informed decision as to what the right course of action is for his circumstances.
Be aware that HMRC has taken a distaste to some of the tax avoidance methods being used in LLPs so you could find that the tax advantages you thought you were getting may not materialise.
As you say, LLP's are not subject to corporation tax and are taxed on profits, however, unlike a general partnership(although I may be wrong), the split can be skewed so it doesn't have to be a 50:50 tax on profits, this is where a lot of the thinking comes into play as we are getting to the point where Mondays and Tuesdays is just pure work and thursdays and fridays are now starting to be work filled aswell, I get up at 6am, do some work for this business before work, go to work, get home, have a coffee with the other half, go to work on this business and then get back home at around midnight/1am then back up at 6am for the next day, the only evening I don't work is Wednesday and it will get to the point where one of us will need to quit their day job and the company profits will need to be skewed to something like an 85:15 split.
At this point is where I beleive dividends would become quite hard as we both have bills to pay and will need a regular income from the business which with dividends is not really an option as I believe monthly dividends would be seen as too excessive by HMRC?
I beleive other expenses are easier with an LLP vs a Limited company as well, as they don't incur BIK charges, for example, if I switch to a lease car, I can claim the full lease cost against company profits, something that I cannot do with a limited company.
I will of course be consulting with an accountant, I just want to try and get as much info as I can behind me.
In answer to another post regarding why I wouldn't want to be VAT registered for as long as possible, the answer is that we sell to the public and we can't raise prices so this would be an instant 20% of revenue gone, so until funds increase and we have the buying power to force the costs down, we really do need to avoid this.
Edited by Marc p on Monday 6th July 12:16
you need to talk to an accountant asap - there are a number of misconceptions in what you say...
you can easily have different classes of shares in a LTD co. and pay different dividends
there are also a lot of ltd companies where directors take money out monthly - and many ways undoubtedly in which they do so - the reality is that as you have other jobs any advice needs to take into account your personal (and spouse if applicable) financial situations - you can't be advised on this company in isolation...
get a good accountant - need not be horrendous, perhaps likely to be c. £100 p/m max and should be worth every penny spent!
you can easily have different classes of shares in a LTD co. and pay different dividends
there are also a lot of ltd companies where directors take money out monthly - and many ways undoubtedly in which they do so - the reality is that as you have other jobs any advice needs to take into account your personal (and spouse if applicable) financial situations - you can't be advised on this company in isolation...
get a good accountant - need not be horrendous, perhaps likely to be c. £100 p/m max and should be worth every penny spent!
Going into business with a good friend is usually a good way to end up not being friends. Probably too late but the decisions you need to take will invariably include at some point those you fundamentally disagree on. One of you might want to jack in the day job and go full time and the other doesn't, one might want to invest in something and the other doesn't. Every penny you spend, waste or don't earn is half the other persons. One of you might become ill. I know as I've been there.
Sit down discuss and write up a bloody good partnership agreement and thrash out how you'll deal with all the things that can go wrong.
Sit down discuss and write up a bloody good partnership agreement and thrash out how you'll deal with all the things that can go wrong.
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