Taxation of partnerships
A Limited Liability Partnership (LLP) is similar in some ways to a standard partnership, except that the individual members have lower liabilities to any debts which may arise from running the business.
There are more administrative duties involved compared to the traditional partnership business structure. In fact, an LLP is very similar to operating a limited company. In terms of liability, the LLP is itself liable for debts incurred in running the business, rather than the individual members. As a result, LLPs are only recommended for profit running businesses.
The LLP would typically select a "designated member" (or members) who would be responsible for maintaining communications with Companies House, preparing accounts and acting for the business if for some reason it is dissolved further down the line.
All profits in the LLP are split between the members. The tax liability falls on the individual members, not the LLP itself. Most members are likely to be self-employed, so all income must be declared via self-assessment. If an LLP member is a company in its own right, it will be liable to pay corporation tax due on any income received from the LLP. As with other company structures, if the LLP is expecting to generate income in excess of the VAT threshold, an application for VAT registration should be made. If it has employees, the LLP should set up a PAYE system to collect income tax and National Insurance contributions and pay these over to HMRC.
A "nominated member' of the LLP will be responsible for informing HMRC of the LLP's existence, and for filling in the annual partnership tax return. This return will also contain a "Partnership Statement" which shows how profits have been divided up amongst the members.
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