LLP & Partnership Setup UK —
Structured Correctly From the Start

Many partnerships operate without a formal written agreement — relying on the default provisions of the Partnership Act 1890. These defaults are often inappropriate for modern businesses — equal profit sharing regardless of contribution, no provisions for retirement, and unanimous consent required for major decisions. A bespoke agreement prevents disputes and protects all partners.

LLPs are tax-transparent — all profits are taxed as partner income in the year they arise, regardless of whether they are drawn. For businesses retaining significant profits for reinvestment, a limited company (where retained profits are taxed at 19-25% CT) is often more tax-efficient than an LLP (where all profits are taxed at individual rates of up to 45%).

Every partner in a partnership and every member of an LLP must register for Self Assessment to report their share of partnership profits. Many partnerships register the lead partner but forget the others — leading to penalties for late Self Assessment registration.

While partners are free to share profits in any agreed proportion, HMRC challenges profit sharing arrangements that appear to have no commercial rationale — particularly where a non-active spouse receives a large profit share. We advise on profit sharing structures that are tax-efficient and commercially defensible.

An LLP is tax-transparent — profits are taxed as individual member income, not subject to Corporation Tax. A limited company pays Corporation Tax on profits (19-25%) and directors/shareholders then pay personal tax on salary and dividends. LLPs are generally more appropriate for professional practices and investment vehicles; limited companies are typically more tax-efficient for businesses retaining significant profits for reinvestment.

Yes — LLPs must file annual accounts with Companies House within 9 months of the year end (same deadline as limited companies). Small LLPs qualify for the same filing exemptions as small companies. LLPs also file an annual confirmation statement. We handle all Companies House compliance for LLPs as part of our standard company secretarial service.

LLP profits are allocated to members according to the LLP agreement and each member pays income tax on their share via Self Assessment. Members pay Class 4 NIC on their trading income share. Unlike a limited company, there is no Corporation Tax at the LLP level — the LLP is transparent for tax purposes. Capital contributions to the LLP are not income and are not taxable when made or returned.

Yes — an LLP can have corporate members (limited companies) as well as individual members. This can be tax-efficient — a corporate member can receive its share of LLP profits as corporate income (subject to Corporation Tax at 19-25%) rather than as individual income (subject to income tax at up to 45%). The use of corporate members in LLPs is subject to HMRC anti-avoidance provisions in certain circumstances.

A partnership agreement should cover: profit and loss sharing (including different shares for different periods or activities), capital contributions and interest on capital, management and decision-making (voting rights, reserved matters), salary/drawings provisions, retirement and exit mechanics (including valuation), death and incapacity, admission of new partners, expulsion of partners, non-compete provisions, and dispute resolution (mediation/arbitration). We draft comprehensive partnership agreements tailored to each client’s specific situation.