LIMITED LIABILITY PARTNERSHIP – LLP
This is a partnership with no share capital formed for you, which you own. You, or persons of your choice, own the LLP.
The Advantages of your own LLP:
- No problems with PAYE on drawings or dividend calculations. You get taxed as self-employed. This reduces your overall personal tax liability each year.
- PAYE taxes at basic rate are 20%+12%+13.8%=45.8%. Self-employed rates are 20%+9%=29%
- You can choose your name with few restrictions.
- Pension options are fairly open.
- Fixed asset purchases such as computers and motor vehicles are straightforward
- You have complete control over the funds of the LLP.
- Any losses from your share of the results of the LLP are offsettable against the rest of your income just like real self-employed people.
- Similarly, if the LLP owns the property where Capital Gains is involved, it is part of your personal CGT situation rather than the LLP. If you make a large Gain, of course, this is a big drama as the rate is higher than if it was made through a limited company.
This is a company with a share capital formed for you, which you own. You, or persons of your choice, own the issued share capital, and you are a director of the company. You operate the company on your behalf paying your expenses, salary, and dividends, tailored to your needs. There are, however, a number of important matters to consider when thinking of setting up your company.
The advantages of your own limited company:
- You can choose your own company name with few restrictions.
- Pension options are fairly open.
- Fixed asset purchases such as computers and motor vehicles are straightforward.
- You may wish to be a director.
- Dividends can be paid to others who are shareholders in the company. This can assist with tax planning.
- Profits accumulated in the company only bear tax at Corporation Tax rates, this can help at least defer higher rate tax liabilities.
- You have complete control over the funds of the company.
- The formation is cheaper than for an LLP.
- Annual return to CoHo a snip at £15pa.
- Capital Gains are insulated within the company and only bear tax at CT rates.
Some disadvantages of your limited company:
- You're a director of the company
- As the company usually has only one or two employees and is controlled by it is not usually suitable for contracting whilst overseas.
- IR35 inquiries from Inland Revenue a possibility due to their odious and bureaucratic scheme. Well-drawn accounts prepared by a good accountant here will help!!
- Similarly, thanks to Mr. Arctic and his mates, s.660 inquiries are now possible to try and stop you paying a ‘reasonable’ level of dividends to your esteemed, and under-valued, partner. In future, you will need to make sure there is an audit trail of verifiable activity in the business of the partner to justify the dividend level.
- Dividend calculations are your responsibility, assisted by ourselves. All clients find this quite a problem area and could, therefore, consider taking advice until comfortable with the dividend system.
- If it turns out you only need the company for a short period you are still lumbered with paying a whole year of our fees as most work on a limited company takes place, whether 6 or 12 months trading is in a set of accounts. Similarly, two sets of accounts = two fees, unfortunately.
In summary, the case for using LLPs is strong so take the step to independence and running your own business.
No more: 35 days holiday year, 35-hour weeks, free training, sick pay whenever you fancy,
Who needs it?