This snapshot, taken on
, shows web content acquired for preservation by The National Archives. External links, forms and search may not work in archived websites and contact details are likely to be out of date.
The UK Government Web Archive does not use cookies but some may be left in your browser from archived websites.

BIM72115 - Partnerships: Limited Liability Partnership (LLP): taxation

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:

  1. all the activities of the LLP are treated as being carried on in partnership by its members (and not by the LLP as such),

  2. anything done by, to or in relation to the LLP for the purposes of, or in connection with, any of its activities is treated as done by, to or in relation to the members as partners, and

  3. the property of the LLP is treated as held by the members of the LLP.’

Except as otherwise provided, in the Tax Acts:

  1. a references to a partnership include an LLP to which ICTA88/S118ZA and/or ITTOIA05/S863 apply,

  2. b .references to members of a partnership include members of such an LLP,

  3. c references to a company do not include such a LLP, and

  4. d references to members of a company do not include members of such a LLP.

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:

  1. the LLP does not carry on a business with a view to profit. In these circumstances ICTA88/S118ZAand ITTOIA05/S863 do not apply (some members clubs or societies fall within this narrow category), and

  2. the LLP is in liquidation or is being wound up by the order of the Court.

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.

But where:

  1. the LLP only temporarily ceases to carry on a business with a view of profit (ICTA88/S118ZA (3)(a) and ITTOIA05/S863 (3)(a)), or

  2. the LLP is being wound up, and
  • the period of the winding up is not unreasonably prolonged, and
  • the winding up is not connected in whole or in part with the avoidance of tax (ICTA88/S118ZA (3)(b) and ITTOIA05/S863 (3)(b)).

then the LLP will continue to be regarded as a partnership, that is as transparent, for the purposes of the Tax Acts.