COM40030 - Case records: setting up case records: limited liability partnerships
Background
The Limited Liability Partnership Act 2000 introduced a new corporate business entity to Great Britain - the Limited Liability Partnership (LLP). The act took effect from 6 April 2001 and provides organisational flexibility of a partnership with the benefit of limited liability for its members.
The LLP Act sets out the rules regarding the incorporation and conduct of an LLP. It also includes tax rules that in general treat LLPs as partnerships rather than as a corporate body. The Finance Act 2001 contains further tax rules that modify and clarify the original rules. Without special rules LLPs would be taxed as companies because in commercial law they are bodies corporate. The special rules mean that the income and gains of LLPs are normally taxed on their members as if they were partners in an ordinary partnership.
There are however two exceptions to this special tax rule. An LLP will be regarded as a body corporate for tax purposes and not as a partnership where it
- Does not carry on a business with a view of profit, for example non profit making clubs and societies
- Is being wound up
Setting up an LLP
An existing or new business wishing to set up as an LLP must first register with Companies House using form LLP2 but a COTAX record is not automatically set up. Instead, an ITSA record is set up when required.
A COTAX record is set up for LLPs only when
- There is a corporate member (liable to corporation tax on its share of LLP profits, but not already set up on COTAX)
- The LLP is not carrying out a commercial business, for example clubs and societies
- The LLP is in liquidation
Note: For the period up to the date of liquidation an ITSA return will be required and for post liquidation periods a company tax return will be required.
