The original legislation relating to the taxation of LLPs was
included in Section 10 of the LLP Act 2000. Amendments to clarify
those provisions and to prevent tax loss where the LLP carries on
an investment or a property investment business were included in
FA01/S75 and FA01/SCH25.
Although in general law a LLP is regarded as a ‘body corporate’, for tax purposes a LLP is normally treated as a ‘partnership’.
ICTA88/S118ZA (for CT purposes) and ITTOIA05/S863 (for income tax purposes) provide that where an LLP carries on a trade profession or other business with a view of profit:
Except as otherwise provided, in the Tax Acts:
Thus the LLP will normally be regarded as transparent for tax
purposes and each member will be assessed to tax on their share of
the LLP’s income or gains as if they were members of a
general partnership governed by the Partnership Act 1890.
It follows that where a LLP carries on a business with a view of profit it will be treated as a ‘partnership’ in respect of all of its activities, including any activities which are not carried on with a view of profit.
It is the persons who are registered as members of the LLP who carry on the business. If a LLP carries on a trade then each registered partner is taxable on the income they derive from the LLP as self-employed trading profits notwithstanding the fact that the registered member may have been a salaried partner (an employee) in a predecessor general partnership.
For those members chargeable to income tax, their share of the partnership’s profits to be charged to tax is calculated in accordance with the rules set out in ITTOIA05/S849 - see BIM72200 onwards - and for those members chargeable to corporation tax in accordance with the rules set out in ICTA88/S114 - see CTM36500 onwards.
There are two exceptions to the normal rule. These are where:
In these circumstances the LLP will be regarded as a ‘body
corporate’ for the purposes of the Tax Acts and will itself
be chargeable to corporation tax on its taxable profits or gains.
then the LLP will continue to be regarded as a partnership, that is as transparent, for the purposes of the Tax Acts.