LLP or LTD?
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Discussion

rfisher

Original Poster:

5,030 posts

299 months

Sunday 27th February 2022
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What are the differences between a limited liability partnership and a limited company?

LLP's seem a bit more modern and are starting to spring up in more than just legal practices.

They look easier to alter in terms of number of partners and agreed payment %.

Cheaper to run in terms of accountant fees I think as well.

Any info gratefully received.

Eric Mc

124,040 posts

281 months

Sunday 27th February 2022
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I can’t think of any advantages.

Alpinestars

13,954 posts

260 months

Sunday 27th February 2022
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LLP more suited to a people business, usually professional services. Members are taxed directly on profits, so maybe not as efficient if you want to retain and reinvest profits.

Less red tape and disclosure with LLPs.

Grrbang

755 posts

87 months

Sunday 27th February 2022
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Alpinestars said:
Less red tape and disclosure with LLPs.
Worth noting that small limited companies (<£10.2M turnover, <50 employees) won't have to publish their full accounts including director remuneration.



One can be more tax-efficient than the other, depending on income. Limited companies are double-taxed, so the company has to to pay CT, and then the directors have to pay dividend tax on the dividends from the remaining profits. However, in LLPs only the partners are taxed.

In addition, limited company directors are typically employees as well, giving them worker rights. With LLPs I've heard there is still some 'flexibility' but don't know any more than that.

Alpinestars

13,954 posts

260 months

Sunday 27th February 2022
quotequote all
Grrbang said:
Worth noting that small limited companies (<£10.2M turnover, <50 employees) won't have to publish their full accounts including director remuneration.



One can be more tax-efficient than the other, depending on income. Limited companies are double-taxed, so the company has to to pay CT, and then the directors have to pay dividend tax on the dividends from the remaining profits. However, in LLPs only the partners are taxed.

In addition, limited company directors are typically employees as well, giving them worker rights. With LLPs I've heard there is still some 'flexibility' but don't know any more than that.
You end up with the same tax rate broadly. “Double tax” is misleading. The public vs private points include the partnership agreement not being public, vs articles being public, companies being governed by the CA etc.

StevieBee

14,286 posts

271 months

Monday 28th February 2022
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I was part of a LLP for a while.

The company of which I was a director had developed a new service which required the inputs of two very specific specialisms provided by two other companies. These would have been unaffordable had we bought them in as third party suppliers. We set up the LLP to act as a vehicle through which work would be won and then divvied up to the three component businesses as per requirement.

This wasn't my preference. Although tax was simplified, the LLP aimed to make zero profit each year. Because of this and the nature of an LLP, it would be difficult, if not impossible, to sell and exit later on. My original plan for the business was to develop and exit within 6 years.

Although the business did OK and each of us benefited nicely, it became apparent that two of us were unduly building the business of the third company. The balance of input, effort and benefit was all out of kilter. That third business then started acting in contravention of heads of agreement we had all signed from the start. Things started getting all unseemly and we all ended up reversing ourselves out of it.

My strong feeling is that had we been a limited company, we would have all benefited from the need to apply more structure to the enterprise which might have prevented its early demise.

I can just about see why a LLP structure might suit a law firm or accountancy practice but for anything else, you're either running a business or you're not and a LLP just feels too loose and vague to me.


loafer123

16,012 posts

231 months

Monday 28th February 2022
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We have an LLP, and are moving to each partner being a personal corporate Ltd company.

Seems to be the best of both worlds.

Eric Mc

124,040 posts

281 months

Monday 28th February 2022
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How does that work with IR35?

rfisher

Original Poster:

5,030 posts

299 months

Monday 28th February 2022
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StevieBee said:
a(n) LLP just feels too loose and vague to me.
A lot depends on the wording of the partnership agreement, I guess.

Can these be used within a family to share a business asset?

Possibly less hassle than setting up a Ltd company and easier to add or remove individuals?

Would IHT or CGT be affected by this arrangement?

Anyone know of an 'expert' in this field for a chat?

loafer123

16,012 posts

231 months

Monday 28th February 2022
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Eric Mc said:
How does that work with IR35?
I can't speak for our accountants, but the Ltd company has lots of different clients via the transparent LLP, so is a diverse entity with lots of clients.

Eric Mc

124,040 posts

281 months

Monday 28th February 2022
quotequote all
I was referring to individuals drawing partnership profits from the LLP but routing those partnership profit distributions through their own limited company, rather than taking them directly as an individual.

By making the partner in a partnership a "limited company" I would have thought that IR35 would need to be considered very carefully.

MaxFromage

2,406 posts

147 months

Monday 28th February 2022
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I will always charge more in accountancy fees for an LLP than an LTD. They always seem to end up taking more time for a number of reasons.

loafer123

16,012 posts

231 months

Monday 28th February 2022
quotequote all
Eric Mc said:
I was referring to individuals drawing partnership profits from the LLP but routing those partnership profit distributions through their own limited company, rather than taking them directly as an individual.

By making the partner in a partnership a "limited company" I would have thought that IR35 would need to be considered very carefully.
Well you’d either take the view that the Ltd company only works for the LLP, and therefore IR35 looms large, or you take the view that the Ltd company works for lots of clients via the LLP, which is tax transparent, and my professional team think the latter.

I’m interested if you disagree…it is a binary question, rather than being subjective.


Alpinestars

13,954 posts

260 months

Tuesday 1st March 2022
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loafer123 said:
Well you’d either take the view that the Ltd company only works for the LLP, and therefore IR35 looms large, or you take the view that the Ltd company works for lots of clients via the LLP, which is tax transparent, and my professional team think the latter.

I’m interested if you disagree…it is a binary question, rather than being subjective.
It’s a body corporate for legal purposes, ie, a single person. Transparency is a tax fiction afforded to LLPs that carry on a trade or business.

The LLP would also not be able to claim AIA (accelerated capital allowances) if its members included companies.

Edited by Alpinestars on Tuesday 1st March 11:58

Eric Mc

124,040 posts

281 months

Tuesday 1st March 2022
quotequote all
loafer123 said:
Eric Mc said:
I was referring to individuals drawing partnership profits from the LLP but routing those partnership profit distributions through their own limited company, rather than taking them directly as an individual.

By making the partner in a partnership a "limited company" I would have thought that IR35 would need to be considered very carefully.
Well you’d either take the view that the Ltd company only works for the LLP, and therefore IR35 looms large, or you take the view that the Ltd company works for lots of clients via the LLP, which is tax transparent, and my professional team think the latter.

I’m interested if you disagree…it is a binary question, rather than being subjective.
I thought the whole point of IR35 was to try and remove any incidents of what amounts to a "disguised employment". At heart it is the relationship between the individual and who is paying him/her that determines whether an arrangement is caught or not.

Putting a limited company in as a "partner" so that the owner of that limited company can receive their share of income from the actual entity they are doing the work for will be square in the sights of IR35, in my view.

loafer123

16,012 posts

231 months

Tuesday 1st March 2022
quotequote all
Eric Mc said:
loafer123 said:
Eric Mc said:
I was referring to individuals drawing partnership profits from the LLP but routing those partnership profit distributions through their own limited company, rather than taking them directly as an individual.

By making the partner in a partnership a "limited company" I would have thought that IR35 would need to be considered very carefully.
Well you’d either take the view that the Ltd company only works for the LLP, and therefore IR35 looms large, or you take the view that the Ltd company works for lots of clients via the LLP, which is tax transparent, and my professional team think the latter.

I’m interested if you disagree…it is a binary question, rather than being subjective.
I thought the whole point of IR35 was to try and remove any incidents of what amounts to a "disguised employment". At heart it is the relationship between the individual and who is paying him/her that determines whether an arrangement is caught or not.

Putting a limited company in as a "partner" so that the owner of that limited company can receive their share of income from the actual entity they are doing the work for will be square in the sights of IR35, in my view.
That’s a bizarre interpretation.

If the structure were shareholders of a Ltd company, it wouldn’t be IR35, so why would the LLP/Ltd company partners one be?

The same people do the same work for the same clients and pay the same tax in the same way via corporation tax, personal tax and dividend tax.

None are employees of the underlying clients as they work for lots of clients and share work between them.





Simpo Two

89,402 posts

281 months

Tuesday 1st March 2022
quotequote all
loafer123 said:
The same people do the same work for the same clients and pay the same tax in the same way via corporation tax, personal tax and dividend tax.

None are employees of the underlying clients as they work for lots of clients and share work between them.
Three people working as limited companies I can understand. What does the LLP as an umbrella bring to the party?

loafer123

16,012 posts

231 months

Tuesday 1st March 2022
quotequote all
Simpo Two said:
loafer123 said:
The same people do the same work for the same clients and pay the same tax in the same way via corporation tax, personal tax and dividend tax.

None are employees of the underlying clients as they work for lots of clients and share work between them.
Three people working as limited companies I can understand. What does the LLP as an umbrella bring to the party?
The partnership is the counterparty for clients, holds PII etc.

Distributions are then sent according to partnership shares (similar to classes of shares, but more flexible) to the partners holdcos.

As a matter of interest, the holdcos also have Family Investment Companies attached, which is useful tax planning for the future.

ClaphamGT3

11,797 posts

259 months

Tuesday 1st March 2022
quotequote all
Alpinestars said:
It’s a body corporate for legal purposes, ie, a single person. Transparency is a tax fiction afforded to LLPs that carry on a trade or business.

The LLP would also not be able to claim AIA (accelerated capital allowances) if its members included companies.

Edited by Alpinestars on Tuesday 1st March 11:58
Nor, presumably, would the Ltd Co be entitled to claim entrepreneurs relief on capital profit

Alpinestars

13,954 posts

260 months

Tuesday 1st March 2022
quotequote all
loafer123 said:
That’s a bizarre interpretation.

If the structure were shareholders of a Ltd company, it wouldn’t be IR35, so why would the LLP/Ltd company partners one be?

The same people do the same work for the same clients and pay the same tax in the same way via corporation tax, personal tax and dividend tax.

None are employees of the underlying clients as they work for lots of clients and share work between them.
Shareholders don’t get paid income per se. They get dividends. If the shareholder is an employee, he/she would be paid under PAYE for their services. Try being an “employee” working via a limited company. That’s your comparative position. IR35 would firmly be in play.

With an LLP, partners share the total profits of the LLP and are subject to income tax on those profits - all of the profit being taxed in the hands of the LLPs year on year. A very different scenario. If they provide services via the LLP, it being a body corporate, in the same way a company is, IR35 would be in play in the same way as for a company.