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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Partnerships: Limited Liability Partnership (LLP): overview

This section looks at the tax treatment of Limited liability Partnerships (‘LLP’) governed by the Limited Liability Partnership Act 2000.

For bodies formed outside the UK that are called Limited Liability Partnerships see BIM82145

LLPs are ‘bodies corporate’ with legal personality separate from their members. Except where specifically provided for in the LLP legislation, partnership law does not apply to LLPs. The way that LLPs are regulated is similar to that for companies and a number of provisions of the Companies Act 2006 also apply to LLPs.

An LLP can be formed by two or more persons who are carrying on a partnership type business. The LLP has to be registered at Companies House.

LLPs are seen as a flexible business model. As with partnerships, LLPs are governed by the agreement between the members. There are default positions set out in the LLP regulations however in most cases these will be over-ridden by the agreement between the members.

Although there may be a document that is titled ‘LLP Agreement’, the term is defined at regulation 2 of the 2001 Regulations as:

‘“limited liability partnership agreement”, in relation to a limited liability partnership, means any agreement express or implied between the members of the limited liability partnership or between the limited liability partnership and the members of the limited liability partnership which determines the mutual rights and duties of the members, and their rights and duties in relation to the limited liability partnership.’

As a result the LLP agreement will also include the deed of adherence by which a new member is admitted together with any side agreements between the members.

Members

A LLP must have at least two registered members.

The first members are those who signed the document incorporating the LLP. Other people can be admitted by agreement with the existing members.

Where a person becomes a member of a LLP or ceases to be a member of a LLP the LLP must give notice of this to the Registrar of Companies within 14 days.

If a new member has, as a matter of fact, been admitted to the partnership by entering into an agreement with the other members, but the LLP failed to update their register of members, then the new member is still a member of the LLP and liable for tax on their share of the profits.

Individuals, corporates (including other LLPs), and Scottish partnerships are eligible to be members of a UK LLP.

No entity without a discrete, separate legal identity can be a member of an LLP. In particular, a firm such as an English partnership (or an English Limited Partnership) cannot, itself, be a member of a UK LLP

Designated members

The term designated member is used in the LLP legislation. It simply means a member with additional duties under the LLP legislation. The term has no significance for tax purposes.

Nominee members

Where a person admitted as member is a nominee, acting under the instructions of a principal, it is necessary to decide who is taxable on the LLP profit share. The person taxable on the profit share is the LLP member, whatever the context in which they have become a member. The LLP member is the person who has entered into an agreement with the other members either to form the LLP or to be admitted as a member, and whom the LLP is required to register as a member of the LLP, -

The relief available to members of a LLP for losses and interest may be subject to special restriction: see BIM82130-BIM82135.