Set up and register a limited liability partnership (LLP)

Tax matters of an LLP

Profits are shared among members of a limited liability partnership (LLP), and individual members - not the LLP - pay Income Tax on these profits. Unlike limited companies, LLPs don't have to pay Corporation Tax.

In most cases the members will be self-employed, so they must include details of any profits they get on their individual Self Assessment tax returns each year. Self-employed partners are also responsible for paying their own National Insurance contributions (NICs).

It's important that each member of the partnership registers as self-employed with HM Revenue & Customs (HMRC). You can download form CWF1 to register as self-employed from the HMRC website (PDF, 62K) - Opens in a new window. The completed form cannot be submitted online and must be posted back to HMRC.

It is also possible for LLP members to be companies or other LLPs rather than individuals. If so, companies that are LLP members will have to pay Corporation Tax on their profits from the LLP and should include the relevant details on their Self Assessment return for Corporation Tax.

If the LLP has, or expects to have, turnover of more than £70,000 a year, it will need to charge VAT to its customers and pass this on to HMRC.

LLPs with employees must collect and pay Income Tax and NICs from them, which means operating a PAYE (Pay As You Earn) system - see our guide on PAYE for employers: the basics.

What does a new LLP need to do?

When you set up a new LLP you must contact your local HMRC office to let them know the business exists. HMRC will send a Partnership Tax Return, which must be filled in to show the partnership's income and expenses for the tax year. The Partnership Tax Return includes a Partnership Statement, showing how profits or losses have been divided among the partners.

The partnership should appoint one of its members - the 'nominated member' - to fill in the Partnership Tax Return and return it to HMRC. The nominated member should also make sure that other members of the partnership are given copies of the Partnership Statement, to help them complete their own personal tax returns.

Although the nominated member has responsibility for the Partnership Tax Return, all the members will be jointly liable for any penalties that result from it being submitted late or incorrectly.

One of the easiest ways to submit a tax return is via the internet. Partners can find guidance on how to complete their tax return online on the HMRC website - Opens in a new window.

Subjects covered in this guide

• Introduction
• The members of an LLP
• Where to register your LLP and get help
• Deed of partnership of an LLP
• Tax matters of an LLP
• Naming your LLP
• Checklist: setting up and registering an LLP

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