Tag: LLPs

Why accounting firms are choosing LLPs over Limited companies – Accountancy Today and Accountancy Age

Posted on by Alicia Sprott

Kiran notes that this shift reflects a strategic adaptation to the UK’s evolving business landscape, where flexibility and direct tax benefits are increasingly prioritised. Above all, a firm needs to weigh up the benefits of each structure before deciding which resonates with their business model the best.

LLPs offer significant advantages, particularly in taxation and operational agility. Unlike LTD companies where profits are taxed both corporately and on dividends, LLPs enjoy a tax-transparent status, meaning profits are only subjected to income tax as they are earned, not when distributed. LLPs also inherently promote a more integrated business operation, with members engaging directly with clients and sharing in the firm’s administration and profits. This contrasts with LTD structures, where directors manage operations and shareholders are often removed from daily business engagements.

The process of transitioning however requires careful planning, including drafting an LLP agreement and transferring contracts under compliance with employment laws. In short, Kiran comments: “There are pros and cons for accountancy firms looking to become an LLP, but given the nature of our industry, the benefits of becoming an LLP can far outweigh the challenges.”

You can read Kiran’s article in full via Accountancy Today here and via Accountancy Age here.

Strategic tax advice for LLPs

For firms considering this move, the decision between an LLP and an LTD structure should align with long-term business goals and operational philosophies. The inherent flexibility and direct engagement offered by an LLP can be crucial for firms looking to enhance client relationships and agile management practices in a dynamic professional landscape.

For further advice on transitioning to an LLP, please contact Kiran directly.

LLPs: HMRC’s new salaried members rules guidance on capital contributions

Posted on by Alicia Sprott

The rules tax the members of an LLP as employees if three conditions are all met:

  • Condition A: it is reasonable to expect that at least 80% of an individual member’s total remuneration is ‘disguised salary’ (which does not vary or which varies but without reference to the LLP’s profits);
  • Condition B: the individual member does not have significant influence over the affairs of the LLP; and
  • Condition C: the individual member’s capital contribution is less than 25% of the disguised salary that it is reasonable to expect will be payable to him in the relevant tax year.

Failure to meet one or more of these three conditions means that the relevant member will be taxed as self-employed rather than as an employee, which can result in a significant saving of employer’s National Insurance (NI). Alternatively, where salaried members are taxed as employees and their income forms part of the employer’s tax bill, it will also be subject to the Apprenticeship Levy (0.5%), where the employer’s annual total pay bill is £3m or more.

HMRC’s new guidance

HMRC has recently changed its guidance on the interaction of the targeted anti-avoidance rule (TAAR) and Condition C. The TAAR states that any arrangements must be disregarded if those arrangements , ensuring that salaried members rules do not apply.

Until recently, HMRC’s guidance did not preclude LLPs from requiring capital contributions of 25% or more, in order to ensure that Condition C was not applicable. HMRC has, however, amended its Partnership Manual to remove this assurance and to insert an example suggesting that the TAAR applies where a capital contribution is increased with a view to avoid meeting Condition C.

Why the change in stance?

Whilst we can’t be certain, we understand that HMRC’s change of stance was prompted by the recent case of HMRC v BlueCrest Capital Management (UK) LLP. The recent changes to HMRC’s guidance indicates that it is taking a wider view of how and when the TAAR will apply.

The changes to the guidance will be of immediate concern to LLPs and members who have arrangements in place, which apply incremental movements in capital, as these arrangements may now trigger the TAAR. LLPs must ensure they have a robust process in place and assess each member against all three conditions on a regular basis, and at least before the start of each tax year.

However, we must note that the change is only to HMRC’s guidance, not a change to the legislation or case law. HMRC’s guidance will remain relevant to arrangements put in place before the recent change.

How we can help

We can help you review current arrangements to determine if you are compliant with the legislation, to identify if there is a greater risk of HMRC challenge – given its change in guidance – and to mitigate any risks identified.

For more information or to discuss the above, please get in touch with your usual haysmacintyre contact, our Employment Tax team, or our Partnerships Tax team.

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