What is LLP (Limited Liability Partnership)?

A Limited Liability Partnership (LLP) is a hybrid business structure that combines elements of a partnership and a limited company. Like a partnership, profits are shared between the members (partners) and each member pays Income Tax and National Insurance on their share through Self Assessment. Like a limited company, the LLP is a separate legal entity, providing limited liability protection to its members.

An LLP must have at least two designated members, though it can have more. Designated members have additional responsibilities similar to company directors, including signing the annual accounts, filing the confirmation statement with Companies House, and appointing auditors if required. All members can participate in management unless the LLP agreement specifies otherwise.

LLPs are most commonly used by professional services firms -- accountants, lawyers, architects, consultants, and financial advisers. They are attractive because they combine the tax transparency of a partnership (profits taxed once at the individual level, not at the entity level) with the limited liability protection of a company. However, HMRC's 'salaried member' rules (introduced in 2014) can reclassify some LLP members as employees for tax purposes if they meet certain conditions.

To form an LLP, you register with Companies House (£12 online) and file an incorporation document signed by all designated members. There is no requirement for articles of association, but a well-drafted LLP agreement is essential to govern profit sharing, capital contributions, decision-making, and exit provisions. Without a written agreement, the default provisions of the Limited Liability Partnerships Act 2000 apply, which may not suit your needs.

An LLP operates as a separate legal entity -- it can own property, enter contracts, employ staff, and sue or be sued in its own name. The members are not employees of the LLP (unless caught by salaried member rules); they are self-employed individuals who share in the profits.

Each member's profit share is determined by the LLP agreement. At the end of the LLP's accounting period, the total profit is allocated to members according to the agreed ratios. Each member then reports their share on their personal Self Assessment return and pays Income Tax at their marginal rate plus Class 2 and Class 4 National Insurance. The LLP itself does not pay Corporation Tax or any entity-level tax.

The LLP must file annual accounts with Companies House and a partnership tax return (SA800) with HMRC. The partnership return shows the total profits and how they are allocated between members. Small LLPs may qualify for audit exemption under the same thresholds as small companies. The LLP must also file a confirmation statement with Companies House annually.