It is important for each member of an LLP to know where they stand when it comes to taxation, and the government has clearly defined guidelines on this subject.
In most respects, an LLP is treated as a ‘body corporate’ as distinct from its members, but for tax purposes, an LLP is regarded as a ‘partnership’.
Expressed in its simplest form, LLP tax is calculated separately for each member based on how much profit they derive individually from the venture. Each member’s share will have been set out in the partnership agreement, so it is important to ensure this has been accurately and carefully completed.
As you would expect, there are special circumstances where this general rule does not apply. There are two main exceptions that will result in the partnership accounts reverting to ‘body corporate’ status and being taxed as a single entity.
- If the business has been set up without a view to a profit: this is rare, but can happen in the case of certain societies or clubs
- If the partnership is in liquidation or subject to a winding up order from the High Court
There are further stipulations which could once again affect the tax status of your LLP. For example, it may be that your business has ceased to operate with a view to profit, but only temporarily. In this case it would stay as a partnership for tax purposes.
Similarly, if the winding up period for your business is not ‘unreasonably prolonged’, or if the winding up order has no connection with tax avoidance issues, the status of your LLP is likely to remain the same.
Ask Ralli for LLP tax advice
If you have any queries about partnership tax issues, Ralli partnership law solicitors have all the knowledge and expertise to provide you with expert advice on the subject. Call our specialists on 0161 832 6131 for more information.