This document discusses tax and accounting considerations for limited liability partnerships (LLPs). It explains that LLPs provide limited liability for members and are tax transparent. While trading profits face higher taxes through an LLP than a company, capital gains are taxed more efficiently. The document also describes how a hybrid structure combining an LLP and corporate member can help mitigate taxes, and outlines what financial statements LLPs must produce including treatment of members' capital and profits.
1. Tax and Accounting for LLPs
Presented by
Vinita Mithani
Vinita Mithani
18 May 2011
Copyright Arram Berlyn Gardner 2011
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2. Today’s objectives
d ’ b
• Why set up as an LLP, from a legal perspective
• Tax implications of operating through an LLP
Tax implications of operating through an LLP
• How LLPs can be used as part of a structure to
help mitigate tax
h l ii
• What do LLP accounts look like and mean?
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3. Why an LLP? A legal perspective
• Separate legal entity
• Limited liability for members
Limited liability for members
• Members’ agreement
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4. LLP ‐ the tax implications
LLP th t i li ti
• Transparent for tax
Transparent for tax
• Trading profits – less tax efficient than a
company
• No employment tax issues as with a company
No employment tax issues as with a company
• Capital Gains – more tax efficient than a
company
• Sale of business – more tax efficient than a
Sale of business more tax efficient than a
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company
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5. Taxation in a company vehicle
Trading profits/capital gains
Trading profits/capital gains
£000
Company pre‐tax profits 100
Corporation tax
Corporation tax 20% (20)
Post tax profits ‐ paid out as
dividends 80
Income tax on dividends 25% (20)
Net income for shareholder 60
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Effective rate of tax 40%
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6. Taxation in an LLP vehicle
Trading profits
Trading profits
£000
LLP pre‐tax profits 100
Income tax on self‐employed
earnings 40% (40)
Class 4 national insurance
contributions (5)
Net income for member
Net income for member 55
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Effective rate of tax 45%
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7. Taxation in an LLP vehicle
Capital gains
Capital gains
£000
LLP pre‐tax profits 100
Capital gains tax on
individuals 28% (28)
Net income for member 72
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Effective rate of tax 28%
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8. A Hybrid Structure
A Hybrid Structure
Will
Kate
Pippa Middleton
Limited
(Corporate member)
Windsor LLP
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9. The Hybrid Structure
Th H b id St t
• Flexible members’ agreement
l ibl b ’
• Corporate member – commercial purpose
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• Trading profits Corporate Member
• Capital gains Individual Members
• Joiners and leavers no employment tax
Joiners and leavers – no employment tax
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• Accumulate surplus cash – liquidate company
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10. LLP accounts
• S b i i
Submission of annual formal statutory accounts to Companies
f lf l t t t t t C i
House
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• Audit requirements
• Members’ capital: equity ‐v‐ debt
• Equity
– C i ld i
Capital designated as equity
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– Unallocated profits
– Revaluation reserve
Revaluation reserve
• Debt
– Capital not designated as equity
– Profits allocated
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– Profits automatically divided per members’ agreement
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11. Vinita Mithani
Arram Berlyn Gardner
30 City Road
London
EC1Y 2AB
020 7330 0049
020 7330 0049
gg p
vmithani@abggroup.co.uk
Copyright Arram Berlyn Gardner 2011
or Google me!
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