Tax advantages of a UK limited liability partnership?
Discussion
Can anybody point me to some doc or other resource that outlines the benefits of setting up a company as an LLP instead of a ltd company. I understand the benefits of a ltd company - paying as dividends, leaving capital in the firm to spread tax payments over multiple years etc but it seems to me that an LLP would always require me to instantly pay the top rate of UK tax on all profits.
Why would a UK taxpayer use an LLP?
Why would a UK taxpayer use an LLP?
There are few, if any, tax advantages of Limited Liability Partnerships over traditional partnerships..
It must be realised that partnerships are not actually taxed.
What happens is that the individual partners pay personal Income Tax and Class 4 National Insurance based on their own personal share of the partnership profits.
This holds true for traditional non-limited partnerships and for limited liability partnerships.
The main advantage of the LLP structure is the "limited liability" it offers the partners.
It must be realised that partnerships are not actually taxed.
What happens is that the individual partners pay personal Income Tax and Class 4 National Insurance based on their own personal share of the partnership profits.
This holds true for traditional non-limited partnerships and for limited liability partnerships.
The main advantage of the LLP structure is the "limited liability" it offers the partners.
Thanks for the replies. Are there any tax advantages of a partnership over the ltd co - I can understand that with an LLP there is an element of downside protection but from an income point of view I can't see any tax advantage at all of a partnership structure vs a ltd co?
The reason I ask is that I'm being advised to set up a business as a partnership as I'm in the financial sector but from what I can see there is no way I can pay anything less than the absolute top rate of tax on any profits I make.
The reason I ask is that I'm being advised to set up a business as a partnership as I'm in the financial sector but from what I can see there is no way I can pay anything less than the absolute top rate of tax on any profits I make.
Did you not read what I said.
Limited partnerships were brought into being to allow certain types of businesses which are sometimes barred from operating as limited companies the opportunity to limit the personal liabiolity of the individuals who own the business.
If you are not prohibited from operating as a limited company, them I would always suggest a limited company over a limited partnership.
Limited partnerships were brought into being to allow certain types of businesses which are sometimes barred from operating as limited companies the opportunity to limit the personal liabiolity of the individuals who own the business.
If you are not prohibited from operating as a limited company, them I would always suggest a limited company over a limited partnership.
Edited by Eric Mc on Monday 29th March 22:40
Well there most definitely are differences.
Firstly the LLP does not have to pay Employers NI under the LLP structure...thus saving the company a huge amount of money.
When working for an LLP you can be paid gross which is not a huge advantage in the current interest rate environment but if for example you have an offset mortgage you can use your tax money to reduce your mortgage payments or speed up repaying your mortgage...worth having in my opinion. As a partner you basically pay tax twice a year in Jan and July. The first year you join an LLP you may not have to pay anything to HMRC for up to 12 months. It gets complicated but I can explain....
Some LLP's do not pay gross and hold the money back to pay HMRC directly on your behalf....personally I would not work for an LLP under this structure unless your tax money was held in an escrow account. You have personal liability for that money so if the company goes bust you are in deep brown stuff if they have your money.
In my last job we changed to being an LLP so have personal experience of it including negotiating terms with the lovely people I worked for....it really depends on your personal circumstances, definitely how much and when you get paid (i.e. if you get bonuses), and what the individual LLP agreement is like.
And of course "employment rights" are entirely different under an LLP and Ltd Co structure.
Firstly the LLP does not have to pay Employers NI under the LLP structure...thus saving the company a huge amount of money.
When working for an LLP you can be paid gross which is not a huge advantage in the current interest rate environment but if for example you have an offset mortgage you can use your tax money to reduce your mortgage payments or speed up repaying your mortgage...worth having in my opinion. As a partner you basically pay tax twice a year in Jan and July. The first year you join an LLP you may not have to pay anything to HMRC for up to 12 months. It gets complicated but I can explain....
Some LLP's do not pay gross and hold the money back to pay HMRC directly on your behalf....personally I would not work for an LLP under this structure unless your tax money was held in an escrow account. You have personal liability for that money so if the company goes bust you are in deep brown stuff if they have your money.
In my last job we changed to being an LLP so have personal experience of it including negotiating terms with the lovely people I worked for....it really depends on your personal circumstances, definitely how much and when you get paid (i.e. if you get bonuses), and what the individual LLP agreement is like.
And of course "employment rights" are entirely different under an LLP and Ltd Co structure.
Edited by Beardy10 on Monday 29th March 23:13
However, don't forget that shareholders in owner managed limited companies can also avoid NI by paying themselves as much as they can through dividends.
HMRC are not terrible happy with this but so far they have not been terribly successful in their attempts to prevent this type of perfectly legal, NI avoidance.
HMRC are not terrible happy with this but so far they have not been terribly successful in their attempts to prevent this type of perfectly legal, NI avoidance.
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