Discussion
Hi chaps,
Despite reading rather a lot on the advantages and disadvantages of Ltds and LLP I'm still at rather a loss.
On the basis of a company with two directors investing a similar but not neccesarily equal amount of capital can anyone tell me in simple words of two syllables or less what are the advantages and disadvantages of LLP's and Ltds?
Also is there a percieved 'dodgyness' from a buying perspective with LLP's or is that perhaps because they are a relatively new thing or completely unfounded.
Your thoughts would be most appreciated.
Ta.
Despite reading rather a lot on the advantages and disadvantages of Ltds and LLP I'm still at rather a loss.
On the basis of a company with two directors investing a similar but not neccesarily equal amount of capital can anyone tell me in simple words of two syllables or less what are the advantages and disadvantages of LLP's and Ltds?
Also is there a percieved 'dodgyness' from a buying perspective with LLP's or is that perhaps because they are a relatively new thing or completely unfounded.
Your thoughts would be most appreciated.
Ta.
I would suggest that LLPs were created to allow certain professions and occupations the ability to take advantage of limited liability when the limited company option was not available to them - usually for professional or ethical reasons. I wouldn't think that ordinary trading businesses would find any advantage in going down the LLP route.
So if it was a standard business offering product supply and installation, say, you wouldnt recommend an LLP legal structure?
Whilst I doubt that any profit made will be left in the corporation tax angle on LLP's was slightly confusing as its touted as an advantage.
Thanks very much Eric.
Whilst I doubt that any profit made will be left in the corporation tax angle on LLP's was slightly confusing as its touted as an advantage.
Thanks very much Eric.
To be honest, I'm not completely up to speed on whether LLPs offer any greater legal protection than being a director/shareholder of a limited company. My hunch is that they would be pretty much the same. As I said, they were aimed at professional firms that couldn't avail of limited company status.
Taxation wise, LLPs are treated the same as normal "unlimited" partnerships i.e. the partners are taxed on their share of the partnership profits (not salary, drawings or any other form of "distribution"
.
Taxation wise, LLPs are treated the same as normal "unlimited" partnerships i.e. the partners are taxed on their share of the partnership profits (not salary, drawings or any other form of "distribution"
.Partners in a partnership (whether an ordinary partnership or an LLP) never have to be concerned about Benefits in Kind on company cars. BIKs only apply to people such as employees or directors who pay their personal tax on their earnings from the employer/company through PAYE. Partners, like the self employed, do not pay tax under PAYE and therfore fall outside the scope of the BIK regulations.
However, they are not outside the clutches regarding tax regulations on private useage of their "company" cars. However, the way the tax man makes sure the partner does not exploit the private useage of his car is to ensure that a percentage of the running costs and capital allowances claimed on the vehicle are restricted and not claimed as a tax allowable cost in the business.
>> Edited by Eric Mc on Monday 21st November 18:38
However, they are not outside the clutches regarding tax regulations on private useage of their "company" cars. However, the way the tax man makes sure the partner does not exploit the private useage of his car is to ensure that a percentage of the running costs and capital allowances claimed on the vehicle are restricted and not claimed as a tax allowable cost in the business.
>> Edited by Eric Mc on Monday 21st November 18:38
Eric
THough I notice you are a font of all accounting wisdom here on PH, I had a meeting with my accountants yesterday re: possible commercial property purchase. Anyway, the long & short seemed to be that an LLP would enjoy CGT benefits after 2 years that limited companied wouldn't. My accountants said if we bought the property either as an LLP or a trust, we would get much greater CGT relief than if we bought it via a ltd co. I don't know why, but thats what he said, if it helps.
THough I notice you are a font of all accounting wisdom here on PH, I had a meeting with my accountants yesterday re: possible commercial property purchase. Anyway, the long & short seemed to be that an LLP would enjoy CGT benefits after 2 years that limited companied wouldn't. My accountants said if we bought the property either as an LLP or a trust, we would get much greater CGT relief than if we bought it via a ltd co. I don't know why, but thats what he said, if it helps.
Unlike companies, partnerships do not have a tax liability of their own. The individual partners in a partnership pay their own personal tax liabilities based on their share of the income of the partnership generated in the tax year.
If a partnership owned an asset and then sold it, generating a Capital Gain, the individual partners would each be allocated their share of the gain to be returned personally on their individual Self Assessment tax returns. Of course, individuals are allocated an annual Capital Gains Tax allowance which they can then offset against any Capital Gains they make each tax year.
So, if there were two partners in the partnerhip and the partnership had a Capital Gain of (say) £100,000, each partner would be allocated £50,000 against which they would allocate their allowance of £8,500 (2005/06). The individual partners would then add the remaining £91,500 onto their taxable income and pay Income Tax at 22% and/or 40% depending on thir overall income levels for the year.
Companies DO pay their own tax bill - called Corporation Tax. If a company sells an asset and makes £100,000, the company is liable to Corporation Tax on the full £100,000. Companies do not have a CGT tax allowance. However, Corporation Tax rates are quite a bit lower than Income Tax rates so the immediate tyax payable on the gain would be LOWER than if you were paying personal Income Tax. The problem is that the cash from the sale of the asset will be sitting in the company bank account. As soon as the directors/shareholder take the cash out for themselves, they will suffer an Income Tax charge and possibly a National Insurance charge - depending on how they extract the money. So there is the possibility of a double tax hit. There are means of getting the money out which could minimise the tax liability arising but you need careful planning to ensure that this happens.
If an LLP was set up solely to look after the investmnent property, then any regular income generated by the property (rent - presumably) would be returned on both the partnership tax return and on the individual partner's Self Assessment tax return - each partner paying his/her share of the tax arising on the annual rents.
You have to be careful if a company buys a property as an investment. If the investment activity of the company overtakes its trading activity, it will lose its status as a small trading company and lose all of the tax breaks available to small trading companies - the £10,000 Zero percent profit band or the 19% CT rate on profits over £10,000. As long as the investment activity remains ancilliary to the normal trading, then you should not have a problem.
>> Edited by Eric Mc on Monday 28th November 21:14
If a partnership owned an asset and then sold it, generating a Capital Gain, the individual partners would each be allocated their share of the gain to be returned personally on their individual Self Assessment tax returns. Of course, individuals are allocated an annual Capital Gains Tax allowance which they can then offset against any Capital Gains they make each tax year.
So, if there were two partners in the partnerhip and the partnership had a Capital Gain of (say) £100,000, each partner would be allocated £50,000 against which they would allocate their allowance of £8,500 (2005/06). The individual partners would then add the remaining £91,500 onto their taxable income and pay Income Tax at 22% and/or 40% depending on thir overall income levels for the year.
Companies DO pay their own tax bill - called Corporation Tax. If a company sells an asset and makes £100,000, the company is liable to Corporation Tax on the full £100,000. Companies do not have a CGT tax allowance. However, Corporation Tax rates are quite a bit lower than Income Tax rates so the immediate tyax payable on the gain would be LOWER than if you were paying personal Income Tax. The problem is that the cash from the sale of the asset will be sitting in the company bank account. As soon as the directors/shareholder take the cash out for themselves, they will suffer an Income Tax charge and possibly a National Insurance charge - depending on how they extract the money. So there is the possibility of a double tax hit. There are means of getting the money out which could minimise the tax liability arising but you need careful planning to ensure that this happens.
If an LLP was set up solely to look after the investmnent property, then any regular income generated by the property (rent - presumably) would be returned on both the partnership tax return and on the individual partner's Self Assessment tax return - each partner paying his/her share of the tax arising on the annual rents.
You have to be careful if a company buys a property as an investment. If the investment activity of the company overtakes its trading activity, it will lose its status as a small trading company and lose all of the tax breaks available to small trading companies - the £10,000 Zero percent profit band or the 19% CT rate on profits over £10,000. As long as the investment activity remains ancilliary to the normal trading, then you should not have a problem.
>> Edited by Eric Mc on Monday 28th November 21:14
Eric Mc said:
Partners in a partnership (whether an ordinary partnership or an LLP) never have to be concerned about Benefits in Kind on company cars. BIKs only apply to people such as employees or directors who pay their personal tax on their earnings from the employer/company through PAYE. Partners, like the self employed, do not pay tax under PAYE and therfore fall outside the scope of the BIK regulations.
However, they are not outside the clutches regarding tax regulations on private useage of their "company" cars. However, the way the tax man makes sure the partner does not exploit the private useage of his car is to ensure that a percentage of the running costs and capital allowances claimed on the vehicle are restricted and not claimed as a tax allowable cost in the business.
>> Edited by Eric Mc on Monday 21st November 18:38
This is very interesting because we are setting up a LLP which will launch 1st July. We are seeing the accountant but I am unsure what will be the best option for me regarding a company car. However, they are not outside the clutches regarding tax regulations on private useage of their "company" cars. However, the way the tax man makes sure the partner does not exploit the private useage of his car is to ensure that a percentage of the running costs and capital allowances claimed on the vehicle are restricted and not claimed as a tax allowable cost in the business.
>> Edited by Eric Mc on Monday 21st November 18:38
1) Lease a new car which will be run through the company but I will be taxed a % as business use. The company can also claim the VAT back on the repayments.
2) If I use an allowance to buy a used car of about £25K but the company tax, insure and maintain the car inc fuel will I still be taxed BIK even though I would be financing the cost of the car.
The options are confusing.
If you run your business as an LLP there will be NO BIK issues arising on you as the proprietors/partners(there could be on employees, however).
As I mentioned in an earlier post, partners pay their income tax based on their share of partnership profits - not what they draw from the business.
The full running costs and Capital Allowances available on a car should be initially processed through the business. However, before the final taxable share of profits is calculated, the private useage element of the vehicle running costs (including the finance costs relating to the vehicles) and the Capital Allowances claims MUST be adjusted to reflect the Private Useage.
So, in effect, you are "taxed" on your private use of the cars - but in a very different way to the methods used when calculating car Benefits in Kind on Directors/Employees.
These "Private Useage" adjustments relate to cars whether they are purchased outright, purchased using borrowings or on hire/rent.
As I mentioned in an earlier post, partners pay their income tax based on their share of partnership profits - not what they draw from the business.
The full running costs and Capital Allowances available on a car should be initially processed through the business. However, before the final taxable share of profits is calculated, the private useage element of the vehicle running costs (including the finance costs relating to the vehicles) and the Capital Allowances claims MUST be adjusted to reflect the Private Useage.
So, in effect, you are "taxed" on your private use of the cars - but in a very different way to the methods used when calculating car Benefits in Kind on Directors/Employees.
These "Private Useage" adjustments relate to cars whether they are purchased outright, purchased using borrowings or on hire/rent.
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