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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): computation of profits

Trades, professions

The rules at BIM82200 onwards apply to LLPs as they apply to other partnerships.

Capital allowances

Where a LLP succeeds to a business previously carried on by a sole trader or professional or a general or limited partnership this will not of itself give rise to a balancing event for the purposes of the capital allowances provisions.

Cessation/commencement

Where a LLP succeeds to a business previously carried on by an old partnership this will not of itself involve the cessation of the old partnership’s trade or profession or the commencement of a new trade or profession by the LLP.

Partnership annuities

Where an obligation to pay an annuity is transferred from a partnership on incorporation to a LLP, then the members of the LLP will be entitled to a deduction in computing net income for their share of the ongoing payments; and incoming LLP members who assume part of that obligation will also be entitled to such a deduction for their share.

If an obligation to pay an annuity is not transferred to the LLP and the members of the old partnership continue to pay it they will be entitled to a deduction in computing net income for their share of those payments until such time as the obligation to pay the annuity ends, they cease to be a member of the LLP or until the business originally carried on by the old partnership ceases, whichever is the earlier.

Demergers

Where a LLP only takes over part of an existing partnership’s trade, such an event constitutes a ‘demerger’ to which Statement of Practice SP9/86 applies. See BIM82400 onwards for guidance on partnership mergers and demergers generally.

If, following the demerger, the LLP can be seen as having succeeded to the old partnership’s business, the cessation provisions do not apply to the partners of the old partnership in respect of the part of the trade transferred and the commencement provisions do not apply to the members of the LLP. But the old partnership is regarded as having commenced a new business in relation to the part of the trade it retains.

If the LLP does not succeed to the business previously carried on by the old partnership then the cessation provisions apply to the partners and the commencement provisions apply to all the members of the LLP.

Whether or not the business carried on by the LLP is recognisably ‘the business’ previously carried on by the old partnership is a question of fact.