What is an LLP?
If you want to start a business with another person or company, then you need to know about running an LLP, and how this is different from a normal partnership.
What is an LLP?
LLP stands for limited liability partnership. When you ‘incorporate’ (set up) an LLP, you run a business with 2 or more partners, known as ‘members’.
Like a normal partnership, each member could be a person or a company. If a member is a company, it’s referred to as a corporate member.
It’s also possible to set up 2 more types of partnership: a limited partnership, and a partnership. These have different rules and responsibilities from running an LLP.
What’s the difference between an LLP and a partnership?
In an LLP the members aren’t personally liable for business debts if their business can’t pay them. In a partnership, they are personally liable.
Like a normal partnership, each member will pay tax on their share of the profits using their Self Assessment tax return.
How to start an LLP
To set up an LLP, you need to:
- Choose a business name
- Have a registered address, which will be publicly available
- Have a minimum of 2 ‘designated members’
- Draw up an LLP agreement
- Register your LLP with Companies House
- Register the business (and your members) for Self Assessment with HMRC
- Register the business for VAT if your business will have an annual turnover of over £85,000
What is a designated member?
A designated member of an LLP has certain responsibilities relating to accounting and notifying Companies House of any membership changes or changes to business address. Designated members are also responsible for the business’ annual return.
What is an LLP agreement?
The LLP agreement will set out the terms and conditions of running your business together, for example how you share the profits, adding new members, and any other responsibilities you will manage.
What tax do I pay in an LLP?
Income tax
Each member of the LLP needs to register for Self Assessment with HMRC and submit a Self Assessment tax return. You will pay income tax on your income and/or share of the profits from your business partnership.
Find out more about Self Assessment tax returns here
National Insurance contributions
Each member is also responsible for making their National Insurance contributions. You pay your National Insurance as part of your Self Assessment tax return.
Find out more about National Insurance contributions here
Partnership Tax Return
When the nominated partner fills in their Self Assessment tax return, they should also fill in form SA800 to file a Partnership Tax Return.
Corporation Tax
If one or all of the members are a company, then they will have to pay Corporation Tax their partnership profits.
Find out more about Corporation Tax
VAT Return
If your company has an annual turnover of over £85,000 you will need to submit a VAT Return in compliance with Making Tax Digital.
Find out more about Making Tax Digital
Accounting for LLPs
LLPs need to keep accounting records, even if they aren’t trading. They need to keep accounting records for 3 years after they are made.
LLP members need to prepare accounts for each financial year, called individual accounts.
Your LLP accounts should include:
- Profit and loss report
- Balance sheet signed by a member
- Any notes
- Group accounts (if your LLP has a parent entity)
- Accompanying auditors report (unless the LLP is except from an audit)
Your LLP accounts need to be filed with Companies House. When you need to file them will depend on your accounting reference date.
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