Frequently asked questions
1. How do I benefit from joining the LLP?
You will have the status of “partner” in the business. There will be increased transparency regarding business performance and profits, with regular meetings between representative LLP members.
All LLP members are actively encouraged to participate in and contribute to the business as a whole. You may be entitled to a share of any above-target profits and will thus participate more directly in the financial success of the business.
Whilst joining the LLP is not compulsory, the business will thrive from the financial benefits the “partnership model” offers and this will, in turn, benefit the LLP members through their profit shares and through the increased opportunities and investments afforded within the business.
2. I am currently in the process of a mortgage application; would I have to inform the mortgage company if I decided to sign up to the LLP? I do not want my mortgage application to become delayed or fall through and will not join if this would put my application at risk.
For the purposes of a mortgage application, LLP membership is quite similar to being a PAYE employee, but with the benefit of a profit share and increased transparency.
We regularly support many LLP members through the mortgage application process. All they ask is that you liaise with them to ensure that the correct boxes are ticked.
Depending on the lender, you may be assessed as ‘employed’ or ‘self-employed’ for mortgage purposes, and we will provide the documentation you need to evidence your income.
3. Do I get proof every year that my tax return has been completed correctly?
Yes, we will provide this.
4. Please explain how we are considered self-employed only for tax purposes and in no other way.
The way that “Partnerships” are taxed has always been on a “self-employed” basis and LLPs are treated in the same way. However, LLPs are a new construct (since 2001) and the law is rapidly evolving in the direction of treating LLP members as employees for most other purposes.
For example, the “Whistle Blowing Protections” (a Supreme Court decision in 2014) and Pensions Auto-Enrolment have ruled to treat LLP members in the exact same way as employees. Furthermore, we have ensured that all employee rights are preserved and are carried forward in the Partnership Agreement.
5. So who actually pays my tax if we are considered self-employed?
The LLP takes full responsibility for paying all of the tax and NICs owed by you.
6. I have only been with the company a few months; would I still have the same rights as people who have worked here from the start?
You will retain the exact same rights as you would have as an employee of the existing company. Others who have worked for the company for longer will have their comparable rights preserved too. No one will be left worse off and LLP members will likely be better off due to the profit share, as well as other potential future benefits.
7. From an employee’s perspective, what are the downsides of signing up to the LLP except for the tax return?
None – the only downside is an added administrative burden, most of which we will carry out for you. We are also available to help you, without charge, with personal tax and financial queries on a confidential basis.
8. Is there any liability to me personally for being a member of the LLP?
No, “LLP” stands for “Limited Liability Partnership”. This means your total liability is limited to the investment you make in the Partnership in the first place.
9. So, I need to make an investment into the LLP?
Yes, but the company will fund the investment on your behalf. If you choose to join the LLP, your employment with the Limited company will cease and you will be awarded an amount of compensation, which is contributed to the LLP when you join.
This is called a “capital contribution” and is required to ensure that you have “capital” in the partnership. These payments are not made in cash or bank transfer but are reflected in the company and LLP accounts.
10. What paperwork will I have to agree to?
There are a few agreements and forms, which will all be prepared for you:
- Partnership Agreement and Partnership Statement – This is an agreement between you and the LLP which you sign on joining the Partnership. It sets out the terms under which you will be a member of the partnership with your personal details, including your pay and capital contribution.
- Transfer Agreement – The Transfer Agreement reflects the switch from your existing employment terms to joining the Partnership, and is the agreement that provides for a capital sum as “compensation” payable on the change of employment status. The compensation is not paid directly to you but is used to fund your capital contribution.
- Intellectual Property Agreement
As you are no longer an employee of the Limited company, the Intellectual Property Agreement allows the Limited company to continue to benefit from your “intellectual property” even after you have moved to the LLP. This is important as the Limited company remains in place even after the LLP is set up. The payment you receive on this agreement also forms part of your capital contribution to the LLP.
- Form SA401
As discussed above, being a member of a partnership means having to complete a Personal Tax return each year; this will be done for you by OC. The SA401 lets HMRC know that you need to complete a Personal Tax Return. Under the Partnership Agreement, all personal Tax, including National Insurance Contributions (NICs), are paid on your behalf by the LLP.
- Form 64-8
This form allows us to act on your behalf as your agent and manage your tax affairs with HMRC. This means they can complete and submit your annual Personal Tax return for you.
11. Would there ever be any request for a personal contribution to the business?
No, that is the whole point of the Limited Liability Partnership.
12. Would we be held responsible if the business goes bust?
No, only the Designated Members have this responsibility – the equivalent of Limited Company Directors.
13. If there is no profit to share, would we still get a profit share and would we be expected to make contributions?
If there is no profit you will still be entitled to your monthly pay as usual, but there is no additional profit share if there is no profit. Under no circumstances can you be required to make a contribution.
14. Do all staff members have to sign for the company to become an LLP?
No, it is by no means compulsory to join. We believe that the benefits are clear for all to see, but it is up to the individual to decide.
15. Will there be repercussions if staff members do not sign up to the LLP?
No, any team members not joining the LLP now will continue as they are. They will not be entitled to the profit share while they are not LLP members. They may be offered the opportunity to join later if they don’t accept the invitation now, and there is also the option to revert.
16. If we are classed as self-employed for tax purposes and we claim expenses, shouldn’t this reduce our tax and not the company’s tax?
The structure is designed to accrue any tax benefits to the business so as to help increase overall profits which will, in turn, be distributed to the partners and reinvested in the business.
17. What is the protocol for leaving the business as part of the LLP?
Leaving the business is exactly the same process as for an employee with the same notice period, etc. The only difference is that you would need to keep in touch with us to ensure your tax returns are completed correctly after you have left.
You would not receive a P45 when you leave the LLP as the P45 form only applies to PAYE employees. Instead you would need to complete a New Starter Declaration (P46) in your new job, and tick box B.
18. The company is promising that there will be the funds set aside to cover all the income tax/NI liabilities that an individual is due to pay. How is this guaranteed?
As part of the Partnership Agreement, the LLP is liable for any tax due by members during their time as an LLP member. The designated members will be responsible for ensuring that any tax/NI liabilities are paid on behalf of all other LLP Members, in much the same way as they are responsible for collecting and paying your current PAYE taxes.
The funds to pay for this will be held in a ring-fenced bank account, separate from the business bank account.
19. If I am given more responsibilities, does my role in the company change and if so is this reflected in my pay?
The ethos behind LLP membership is to encourage collaborative team-working through a sense of shared responsibility for, and a greater stake in, the business and its profits. While your sense of overall responsibility should increase, your day to day responsibilities in the business are not affected by becoming a partner in the LLP.
20. Please explain how the LLP would affect the following: Holiday pay and entitlement; change of contracted hours; change of pay; redundancy; overtime; sickness entitlement and pay; maternity/paternity entitlement and pay; and other State Benefits?
All of the above are effectively the same as now apart from the enhanced profit share. All of your statutory rights as an employee are transferred to the LLP and become contractual rights. The key point is that this is designed as an “upside only” opportunity.
We support the LLP by completing all the hard work in the background to ensure that the structure can deliver cultural and financial efficiencies to the business and to ensure there is more profit to distribute to everyone in the team.
21. Will I get a payslip and how will I be paid?
You will receive a ‘LLP drawings statement’ each pay period showing your gross and net income and you will continue to be paid on exactly the same day each month, at exactly the same amount as normal.