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Company Format – Limited Liability Partnership
I have noticed recently that a few of my customers trade under the format LLP (Limited Liabilty Partnership). This trading format was introduced in 2001 and provides limited liability to traders not wishing to trade as a limited company but who prefer the more simpler partnership arrangement for trading and paying tax under self assessment.
I just wondered what anyone’s experience was of this? It’s advantages/disadvantage’s and general advice (should we all be set up in a limited liability trading format)?
Our accountant says there is no need for us to do this as we have little or no exposure to any risk.
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5 Replies
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I don’t know much about LLPs, but, for what it’s worth…….
Although common in other countries, most notably the US and offshore tax havens, I think they were finally introduced in the UK after the Lloyds Insurance fiasco of about ten years ago, when it was realised that organisations like Lloyds, firms of solicitors etc, who were legally barred from becoming limited companies, needed a similar form of liability protection.
I don’t know what the advantages are for the likes of us, as opposed to a proper limited company, but I might be able to find out next week.
Phill, ignore your accountant. Erecting signs is "little or no exposure to risk"? I wonder if your insurance company share that view? I don’t doubt the standard of your workmanship, but signs do fall down, and the potential consequences of an 8′ x 4′ spinning down Livingston High Street in a high wind on a Saturday afternoon would worry me.
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His answer to that one John was our public liability insurance would cover us.
Incidentally, he also tells us that our government is planning to tighten up tax rules on limited companies. One of their scheming plans is to question when a husband and wife team run a company and split the tax burden 50-50 between them. They will ask for proof that both partners are working full time in the company before allowing them to take full advantage of their tax allowances. This scheme has been put on hold for one year (presumably because Brown knows it’s a vote loser) and will hopefully be put on hold again next year until the current bunch of incompetents are kicked out of office.
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We’ve had £5m Public Liability now for getting on 10 years, we had to back then because of the Council contracts we were handling.
However, ask yourself (and I know this is a little far fetched but could happen) what would happen if a banner (or sign) you had fitted came down and went across the windscreen of a bus, carrying the England (or Scotland in your case) football team, causing it to crash and several got killed/injured that their career was over?
£5m wouldn’t even wipe up the tears.
You’ve obviously thought about it in the past Phil, as you have a non-trading Limited Company already set up. Personally, I would start using it.
As for the husband/wife tax scheme being put on hold, that’s one to thank the FSB for, they lobbied hard on this one!
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Well, your accountant has more faith in an insurance company not trying to wriggle out of a claim than have I. "Could we see your certificate of training for mounting signs Mr. Fenton? Not got one? Oh dear, if you don’t have the necessary qualifications for that type of work then you aren’t covered."
I have been working for nigh on forty years now and have managed to amass a few assets. I wouldn’t put everything I’ve worked hard for at risk like that. Much too dangerous for me.
HMRC have been wanting to have a pop at small, family or one man, limited companies for years. What really annoys them are the folks that pay themselves very low wages and take the bulk of the profit in dividends, thereby attracting a lower rate of tax, and avoiding National Insurance payments on the value of their dividends altogether. However, they already have the power to deal with that, if they choose to use it.
Once the question of reasonable wages is addressed, I’m not sure what they can do about splitting dividends in family owned limited companies. In a company, each shareholder must receive dividends in proportion to their ownership, regardless of how much, if any, work each of them does. There’s no way out of that.
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quote John Childs:I don’t know much about LLPs, but, for what it’s worth…….
Although common in other countries, most notably the US and offshore tax havens, I think they were finally introduced in the UK after the Lloyds Insurance fiasco of about ten years ago, when it was realised that organisations like Lloyds, firms of solicitors etc, who were legally barred from becoming limited companies, needed a similar form of liability protection.
Thanks for the explanation John – I did wonder why the need for a LLP when if you are concerned about limiting liability then a limited company is the obvious route. I hadn’t realised certain organisations were barred from becoming limited companies.
Chris – we set up the (dormant) company as a way of protecting our trading name – preventing anyone else from registering it. We were also considering trading in this format for tax reasons but have subsequently been advised that we are currently no better off. The only other reason would be for limited liabilty.
Also – well done the FSB for lobbying re tax rules for small limited companies (incidentally Chris – I have been an FSB member for more than 11 years now)
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