Are you an LLP? did you know there have been some recent changes to the law. We have prepared a presentation that will cover off the following; What is an LLP Who is a Partner Admitting new members/shareholders Tax What the recent changes to the law are. If you have any further questions then please contact one of are highly experienced lawyers who will be happy to help.

1. LLP vs LTD
CATHERINE GANNON

2. What we are covering
• What is a LLP
• Who is a partner
• Admitting new member/shareholder
• Tax
• Recent changes to the law
• Questions

4. Background to LLPs
• Limited liability v unlimited liability
• Flexible
• Tax
Question:
In anticipation of a client win expensive IT system
installed. Income does not materialise.
What are the implications for the partners?

5. Who is a partner - significance of the distinction
• Generally speaking, the restrictions and duties
imposed on a member are greater than in
respect of an employee.
• Employee status
• Enforcing post termination restrictions

6. Who is a partner
• No statutory definition
• Different for tax
• Pointers
Question:
Priscilla receives £100K PA plus benefits.
Is she a partner?

7. New Member/Shareholder - joiners
• LLP - easier to make changes to membership
• Dealing with joiners – voting, restrictions,
allocation of profits and capital and management
• Notice
• Power of attorney

8. New Member/Shareholder - joiners
Question:
Matilda joins the LLP bringing IP which she
enhances during her engagement.
Who owns the IP?

9. New Member/Shareholder - leavers
• Good and bad leavers
• Post termination restrictions
• Events arising after leaving
Question:
Who owns the goodwill and at what value?

10. Taxation

11. Tax on income - LLPs
• Tax Transparent
• Taxed as self employed
• Class 2 and Class 4 NICs
• Flexibility regarding profits

12. Tax on Income - Ltd
• Not transparent
• Salaries subject to PAYE/NI
• Company pays corporation tax
• Shareholders pay tax on dividends
• NIC – class 1 greater than class 2 and class 4

13. Losses
• LTD - can only be used within the company
against certain profits.
• LLP - can be set against other taxable income
but with restrictions on the amount allowed to be
set off
• LLP losses restricted to higher of £50K and 25%
of taxable income

14. Profits
• LLP – flexible in accordance with agreement
• Ltd – fixed dividend per share
Question:
Fred claims he brought in considerable revenue in
excess of existing contributions.
What can you do?

15. Tax on Income - Ltd
• Not transparent
• Salaries subject to PAYE/NI
• Company pays corporation tax
• Shareholders pay tax on dividends
• NIC – class 1 greater than class 2 and class 4

16. Tax on sale - CGT
• Rates 28%, 28% or 10%
ER conditions
• Officer, director, employee, partner
• 12 months holding period
• 5% of the voting shares
• No 5% requirement for LLPs

17. What does ER mean in terms of tax
• Business sold for £876,000
• Less: cost of shares (£1,000)
• Capital gain £875,000
• Less: annual exemption £10,900
• Taxable gain £864,100
• ER CGT @ 10% £86,410
• Walk away with £789,590

18. Sale of LLP
• Suited to sale to other members of the team
• No transfer of shares
• On cessation of membership for any reason no
assets pass unless specifically agreed
• Death

19. Sale of Ltd
• Transfer of shares
• On leaving the business shares remain unless
otherwise agreed
• Death

20. Deferred consideration/earn outs
• CGT treatment
• Selling off in tranches
• More flexible for LLPs

21. Deferred consideration/earn outs
Question:
Bill sells his interests for £300K payable £100K on
completion and £200K in stages depending on
future profits.
How much tax does Bill pay?

22. Changes to the Law regarding LLPs
• HMRC want to see members take risk.
• LLP members will be taxed as employees
subjected to PAYE and NI if all 3 conditions met.
• If you fall foul of 2 then still self-employed.
• Penalties and interest for the LLP. Tax
indemnities.

23. Changes to the Law regarding LLPs
• Condition A: at least 80% of the
member's pay is fixed or if variable do not
vary in line with actual profits and losses of
the LLP.
• Condition B: a member has no significant
influence over the affairs of the LLP.

24. Changes to the Law regarding LLPs
• Condition C: a member’s capital stake in
the business is less than 25% of their
expected reward package.

25. Use of service companies with LLPs
• Thing of the past
• If mixture of individuals and companies
and where it is "reasonable to assume"
that one of the main purposes of the
arrangement is to secure an income tax
advantage for any member of the LLP –
new rules then apply

26. Illustration of new tax rules
Question:
Fred earns £160K per annum fixed draw. It is
suspected that he is setting up a competing
business and he is fired. Fred claims unfair
dismissal.
What is the liability of the LLP?

27. Other factors to consider
• Confidentiality
• Reporting
• Status

28. Success

29. ANY QUESTIONS
How can we help you?
Visit www.gannons.co.uk for further information
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