6 June 2013 by Vincent Billings

LLPs: Handle With Care

Limited Liability Partnerships (LLPs) were introduced in England on 6 April 2001 and have many advantages, including limiting the personal liability of their members while being taxed in the same way as traditional partnerships. LLPs have long been favoured by professional practices (e.g. solicitors, accountants and architects) but are increasingly used in other sectors due to the flexibility they can offer. When new business structures evolve, they can end up being used for purposes that were not necessarily anticipated or intended. This seems to be the case with LLPs.

On 20 May 2013, the government published a consultation document which seeks to tackle the issue of “disguised employment” within LLPs. In short, LLPs can be structured so that certain members receive a fixed or guaranteed share of the LLP’s profits, whether or not the LLP actually makes a profit. In other words, such members do not assume any risk – they do not (and will not) bear any losses that the LLP might incur.

The government’s argument is that such ‘fixed share’ payments are similar to the salary of an ordinary employee, but without attracting the same rates of tax. HM Revenue and Customs (HMRC) state “there is evidence that LLPs are increasingly being used and marketed as ways to avoid tax”. Members of an LLP are currently taxed as if they are self-employed, paying less income tax and national insurance than an individual employed by the LLP on similar terms. As a result, according to HMRC, LLPs can be (and are being) used to ‘disguise’ employment and reduce the associated tax liabilities.

This was never the government’s intention, so it now plans to remove the presumption of self-employment for members of an LLP. Instead, LLP members will be liable for employment-related taxes if they satisfy certain criteria for being employed on a contract for services. The key test is likely to be whether a member “has no significant entitlement to reward” when the LLP makes a profit but suffers “no significant downside” if the LLP makes a loss.

The proposed changes could significantly affect the structure of some existing LLPs and the way that their individual members are taxed. All LLPs should therefore review their current arrangements, including their membership agreements, in light of the proposed changes.

For more information and advice regarding LLPs, LLP membership agreements and other business structures, please contact us on 0207 288 4700 or email us at info@boltburdon.co.uk

24 May 2013 by

Live/Work Units – the essentials

Many buyers looking for a residential flat will stumble across “live/work” units. But many do not fully understand what a “live/work” unit is. If you are one of them, then this blog is for you...

31 May 2013 by Yezdan Izzet

Stress or distress? An update on the landlord’s remedy of distress

It can be a major stress on any commercial landlord’s business when their tenant defaults on the rent. The common law remedy of distress presently allows a landlord to instruct bailiffs to seize and sell goods from their tenant’s premises to an equivalent value of the rent arrears.

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