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Business Services  •  Tax Planning

Would you benefit from operating your business through an LLP?

By RJP LLP on 29 August, 2019

Limited liability partnerships (LLPs) are a special legal structure distinct from limited companies or partnerships. They provide the limited liability protection of a limited company with the tax treatment of a partnership. So whilst they are subject to many aspects of company law, for tax purposes they are treated as partnerships with members providing working capital and sharing profits.

Members who are individuals are liable to pay income tax under self-assessment, and self-employed Class 2 and Class 4 National Insurance contributions on their share of profits; members who are limited companies are liable to pay corporation tax on their share of profits.

Although LLPs are widely used by professions such as accountancy and law, they are not restricted to these professions. They are suitable for all kinds of businesses - professional, trading, or investment and are well worth considering if you have a partnership but don’t want to make the leap into running your business through a limited company.

What are the advantages of an LLP?

As with a limited company, LLPs allow personal assets to be protected, because the personal financial assets of members can be ‘ring fenced’ from business liabilities.

The limited liability protection afforded by an LLP can be restricted to an individual member only.  For instance, if an LLP member gives a personal guarantee to a creditor (e.g. the bank) the creditor can only pursue that individual member in the event of a default; other members are not liable.

Any victims of negligence caused by an individual LLP member can only seek compensation from the relevant member to recover any losses as a result.

From a tax point of view, the tax due on profits from an LLP are considered the personal liability of members (like an ordinary partnership) and not a liability of the LLP.

LLPs provide more flexibility in relation to profit sharing than limited companies.

If you would like to discuss operating your business through an LLP, or wish to consider another legal business entity, please contact partners@rjp.co.uk.

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31 December 2020 - Review disposals of chargeable assets to avoid a possible CGT increase

Capital gains tax is due to be reviewed by the government and if a CGT rise is announced, the new rates may become effective from the next tax year on 6 April 2021. Take advice now if you are thinking of selling property or have other assets giving rise to a capital gains tax liability.