Limited Liability Partnership (LLP) is a corporation form of a partnership. It is an attractive variation that retains all the flexibility of a partnership whilst giving the partners limited liability.
Benefits of LLP
LLPs were introduced back in 2002 as it was deemed unfair for partners to bear each other’s liabilities.
- An LLP is a separate form of legal business entity which gives the benefits of limited liability, but allows partners to have the flexibility of organising the business structure as a traditional partnership.
- As a partnership you can own cars and provide fuel for all partners without any benefit in kind charge.
- As a partnership you can hold luxury assets such as boats, yachts and jets without a benefit in kind charge.
- It will protect each partners personal assets from the liabilities of the business.
There are no requirements for board or general meetings or decision making by resolution, unlike a company.
LLP Taxation v Company Taxation
LLP Taxation
- Each individual partner is taxed on their share of the profits for the tax year
- Partners pay Class 2 and 4 National Insurance
- An LLP carrying on a trade with the view to making a profit is treated as being transparent for tax purposes, any losses that may occur to it’s members may offset their share of the loss against other income in the same year. However, there is a restriction to the higher of 25% of their taxable income or £50,000.
Company Taxation
- A company pays corporation tax on its profits
- If you are a higher rate tax payer, you should consider trading as a company to protect profits from higher rates of income tax. A company is taxed on its profits at a lower rate of tax of 19%.
If you are paying yourself a salary via a company, you have the added cost of employers’ National Insurance Contributions. However, this cost can be deduced from profits. Another option is for the remuneration to be taken out of the taxed profit by dividend, this will then save the company the cost of NICs.