A Limited Liability Partnership (LLP), like a limited company, provides its stakeholders with limited liability. However, LLPs are taxed in a similar style to self-employed partners. This business setup is very popular in professional services such as legal and accounting practices.
Put simply, an LLP affords the tax versatility of a partnership, but the benefits of a limited company. This ensures that partners within an LLP keep their personal assets separate from the business, whereas in a standard self employed partnership the business assets and that of the partners are one and the same.
Key points of LLPs
- Its formation requires two or more people
- This structure can be used anywhere across the United Kingdom
- The Companies House reporting obligations are similar to private limited companies
- An annual return must be submitted
- Just like limited companies, LLPs must inform Companies House of any changes to business address, or name and address of the partners.
- Annual accounts must be filed with both HMRC and Companies House
- A Deed of Partnership should be created, outlining how the business is to be managed, profit split, partner contributions, and what would happen should a partner leave the business.
- If a Deed of Partnership has not been created, then Limited Liability Partnerships Act will come into effect if a dispute should arise.
- Partners must pay tax via annual self-assessment, and also National Insurance on their income.
- All partners must be registered as self employed.
- If an LLP exceeds a turnover of £83,000 within a period of 12 months, it needs to register for VAT.
How do you set up an LLP?
Form LL IN01 must be completed and sent to Companies House. LLPs can be incorporated for £14 if done online (the cost rises to £40 for paper submissions)
Form LL IN01 must include the LLP name, registered business address, statement of compliance and details of all partners involved. Your LLP name must not already be taken by another business.
Once Form LL IN01 has been processed, you will be sent a certificate of incorporation by Companies House.
In order to change the name of an LLP, for example of one of the partners leaves the business, you must complete and submit Form LLNM01 to Companies House.