Starting up:
Setting up a limited liability partnership
As an alternative to forming a partnership, you could form a limited liability partnership (LLP). An LLP must be registered at Companies House. It must have at least two members, of which two must be designated members. The designated members have extra legal responsibilities, similar to those of a company secretary. A company itself can be a member of an LLP.
The rights and responsibilities of each of the members is defined in the LLP agreement. There is no legal requirement to have a written partnership agreement, but we recommend that you set out the terms in writing and get them signed. There are also advantages in involving a solicitor (if you do not have a solicitor we can recommend one to you). The agreement will set out clearly from the outset how you intend to make decisions on certain operational matters and may help you avoid or resolve any future misunderstandings or disputes.
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A new LLP should contact the local tax office to let them know the LLP exists. HM Revenue & Customs (HMRC) will send a partnership tax return, and the LLP should appoint one of its members (the 'nominated member') to be responsible for the completion of the return and to give information to the individual partners to assist in the preparation of their individual returns.
Each member is also classed as being self employed, so each member also needs to notify HMRC when they commence self employment. The notification should be within 3 months of the end of the month in which they join the partnership, or they may be charged a £100 penalty. The notification is made either by completing Form CWF1 or, more simply, by phoning the Self Employed Registration Helpline.
If you are a member then, as a self employed person, you will pay income tax, Class 2 and Class 4 national insurance contributions (NIC). Income tax and Class 4 NIC are based on your share of the profits, and are collected under the self assessment system.
By contrast, you need to start paying Class 2 NIC as soon as you become self employed. Class 2 NIC is charged at a weekly flat rate and we recommend that you complete the direct debit mandate, which forms part of the form CWF1, so that this is taken from your bank account automatically each month.
If the LLP has any employees, it will need to register for a PAYE scheme.
The LLP must also register for VAT if its sales are sufficiently high or if it wants to register voluntarily.
For more information on tax matters, see the following sections
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Where next?
Within Setting up ...- Choosing a name
- Setting up as a sole trader
- Setting up a partnership
- Setting up a company
- Choosing your accounting date
- Getting the stationery right
- Opening a bank account
Within Starting up ...
- Developing your business idea
- Your business structure
- Accounting systems
- Payroll and PAYE
- National Insurance contributions
- VAT
- Income tax
- Corporation tax
- Contact us about this issue
- Read about how we can help you & your family
- Request a meeting with us
