Tax And Accounting For Llps
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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.
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Tax And Accounting For Llps
- 1. Tax and Accounting for LLPs Presented by Vinita Mithani Vinita Mithani 18 May 2011 Copyright Arram Berlyn Gardner 2011 m abggroup www.abggroup.co.uk
- 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? Copyright Arram Berlyn Gardner 2011 m abggroup Tax and Accounting for LLPS www.abggroup.co.uk 2
- 3. Why an LLP? A legal perspective • Separate legal entity • Limited liability for members Limited liability for members • Members’ agreement Copyright Arram Berlyn Gardner 2011 m abggroup Tax and Accounting for LLPS www.abggroup.co.uk 3
- 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 Copyright Arram Berlyn Gardner 2011 company m abggroup Tax and Accounting for LLPS www.abggroup.co.uk 4
- 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 Copyright Arram Berlyn Gardner 2011 Effective rate of tax 40% m abggroup Tax and Accounting for LLPS www.abggroup.co.uk 5
- 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 Copyright Arram Berlyn Gardner 2011 Effective rate of tax 45% m abggroup Tax and Accounting for LLPS www.abggroup.co.uk 6
- 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 Copyright Arram Berlyn Gardner 2011 Effective rate of tax 28% m abggroup Tax and Accounting for LLPS www.abggroup.co.uk 7
- 8. A Hybrid Structure A Hybrid Structure Will Kate Pippa Middleton Limited (Corporate member) Windsor LLP Copyright Arram Berlyn Gardner 2011 m abggroup Tax and Accounting for LLPS www.abggroup.co.uk 8
- 9. The Hybrid Structure Th H b id St t • Flexible members’ agreement l ibl b ’ • Corporate member – commercial purpose p p p • Trading profits Corporate Member • Capital gains Individual Members • Joiners and leavers no employment tax Joiners and leavers – no employment tax Copyright Arram Berlyn Gardner 2011 • Accumulate surplus cash – liquidate company m abggroup Tax and Accounting for LLPS www.abggroup.co.uk 9
- 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 q • Audit requirements • Members’ capital: equity ‐v‐ debt • Equity – C i ld i Capital designated as equity d i – Unallocated profits – Revaluation reserve Revaluation reserve • Debt – Capital not designated as equity – Profits allocated Copyright Arram Berlyn Gardner 2011 – Profits automatically divided per members’ agreement m abggroup Tax and Accounting for LLPS www.abggroup.co.uk 10
- 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! m abggroup Tax and Accounting for LLPS www.abggroup.co.uk 11