How to set up a limited liability partnership in the UK?
WHO IS IT FOR?
- For professionals, such as solicitors, accountants, doctors, architects, etc., who would benefit from limited liability
- Anyone can be a partner (member) as long as they are not a disqualified director of a limited company or an undischarged bankrupt.
WHAT DO YOU NEED?
- At least two designated members (can be person or company)
- Partnership name that complies with government regulations
- Registered office (can be your home address)
- Partnership agreement (not a legal requirement but recommended)
WHO DO YOU REGISTER WITH AND HOW MUCH
DOES IT COST?
You need to register your partnership with Companies House. You can register:
- By yourself, through approved software, £10 (can take up to 5 days) or £30, the same day service
- By yourself, paper application, £40 (can take up to 5 days)
- Hire a formation agent – £50 – £100 (price often includes registered address and members’ service address)
- Hire an accountant – more expensive than the above options but can be free if you sign up as a client; can take up to 10 days.
You also need to register your partnership with HM Revenue & Customs for Self Assessment tax return, VAT (if you expect a turnover of more than £85,000) and PAYE (if you plan to have employees). There’s no registration fee.
In addition, all members (partners) are required to register individually with HMRC for Self Assessment tax return.
WHEN DO YOU NEED TO REGISTER?
You need to register your LLP partnership before you start trading. If you have started trading without registering an LLP, then you are effectively an ordinary partnership and must register your business for Self Assessment with HMRC. Once you complete the LLP registration process you can switch to trading as a limited liability partnership.
THE REGISTRATION PROCESS
STEP 1: Choose a name for your partnership
When choosing a name for your business, you have to follow certain rules:
- The name must end in “Limited Liability Partnership” or “LLP”; or the Welsh equivalents “Partneriaeth Atebolrwydd Cyfyngedig” and “PAC”, if registered in Wales.
- The name cannot be offensive.
- It cannot be the same or too similar to an existing business’s name or trade mark.
- The name cannot contain a “sensitive” word or expression, or suggest a connection with government or local authorities unless you have a permission (e.g., “accredited”, “association”, “architect”, “British”, etc.).
To check if the name you want to use is still available, you can do:
- a search on the Companies House website that has information about all businesses registered in the UK.
- a trade mark search on the Intellectual Property Office website. There are 45 different trade mark classes, each relating to a different industry, and you should only be concerned about the trade marks in the class your business belongs to.
- a Google search, if you plan to operate in international markets and want to avoid potential name disputes outside the UK.
In addition to the registered name, your company can have a trading name (also called business name) which you have to register as a trade mark if you want to stop others from using it.
There a few other things to bear in mind when choosing a name for your company:
- Clients will expect you to have a website, so make sure there is a matching domain name available (e.g., yourllpname.com). How to purchase a domain name is explained in our free guide Everything you need to build a website.
- Name that start with “A” or “B” will get your business listed at the top in most directories
- The name should be easy to pronounce and remember.
- If you plan to expand to other regions, avoid using local names.
- You can file a name change with Companies House anytime (£8, if done online).
STEP 2: Choose a registered office address and directors’ service address
Registered office address will be your business’s official address, where all HMRC and Companies House mail will be sent and which will be displayed on your invoices, emails, brochures, website, etc. It’s also where you should keep your partnership files and accounts so that they are available for inspection by HMRC and others.
Your registered office address has to be in the UK and cannot be a PO Box, unless you have the full address including the street name and number. You can, but you don’t have to trade from that address.
When choosing a registered office address for your partnership, the main considerations are:
- Jurisdiction – Although it is simple to change your partnership’s registered address, it cannot be moved between countries. If your partnership is registered in England and Wales, your registered office address will always have to be in England or Wales. The same applies to partnerships registered in Scotland and Northern Ireland.
- Home address – If you rent your home, you will need permission from your landlord. If not, you can register a partnership at your home address but be aware that in that case your home address will be on the public register. If you want to keep it private, you have to use a third-party address. Many accountants and company formation agents offer relatively affordable registered office services.
- Image – If you run a small local business, using your home address should be fine. However, if you plan to work for corporate clients and want to create a professional image for your business, a registered office address in a business district would be a better choice.
Trading address (also called business address) is where you carry out the most of your business activities. It’s where your clients, bank, suppliers, etc. send their letters.
Members (partners)’ service address is their correspondence address. If you don’t provide a service address for the members, their usual residential address will be on the public register. Members’ service address can be your registered office or trading address, or any other address they don’t mind to make publicly available.
Companies House may place a member’s residential address on the public register if communications requiring a reply within a specified period remain unanswered or there’s evidence that sending documents to a member’s service address is not effective.
STEP 3: Decide who will be members (partners)
An LLP can have two types of members:
- Ordinary members (any number)
- Designated members (minimum two).
The designated members are responsible for running the partnership, annual accounts and all communications with Companies House and HMRC.
An LLP member can be:
- a person or
- a company (corporate member)
- of any nationality and country of residence.
If any of the members holds more than 25% of the voting rights or can exercise significant control in the LLP (appoint and remove the management team, control more than 25% of surplus assets at winding up), they have to be listed as People with Significant Control.
STEP 4: Choose a SIC code for your business
SIC code is a five-digit Standard Industrial Classification code that specifies your business activity. You’ll be asked to provide it during the partnership registration process. It’s possible to have up to four SIC codes per business and they can be changed at a later date.
The list of Standard Industrial Classification (SIC) codes is available on the Companies House website.
STEP 5: Partnership agreement
A partnership agreement normally specifies:
- members’ capital contributions
- members’ rights and responsibilities
- allocation of profits and losses
- how decisions are made
- how members can join or leave the LLP
- death of a partner, etc.
A partnership agreement is not a legal requirement in the UK, but it’s recommended to have one. In the absence of a written agreement, your LLP will be regulated by the Limited Liability Partnership Act 2000, and all LLP members will have equal rights, responsibilities and share of profits.
If you don’t want all members (including future members) to have equal rights, you need a formal partnership agreement. With an agreement, LLP members can divide rights, duties and profits in any way they want.
You can write the partnership agreement yourself or hire a solicitor:
England and Wales: Find a Solicitor – The Law Society
Scotland: Find a Solicitor – Law Society of Scotland
Northern Ireland: Solicitor Directory – The Society of Northern Ireland
Many partners save money by writing the agreement by themselves, and then engaging a solicitor to review and modified it, to ensure it complies with the partnership laws.
STEP 6: Find out whether you need a licence
There are many business types that require a licence in order to trade. You can use the Licence finder – GOV.UK tool to find out if your business needs a licence. It will also tell you who to contact to make an application.
STEP 7: Find out whether you need insurance
Employers’ liability insurance protects you against the cost of compensation claims arising from employee illness or injury, sustained as a result of their work for you. You must purchase employers’ liability insurance as soon as you become an employer and your policy must cover you for at least £5 million and come from an authorised insurer. You could be fined £2,500 for each day you’re not covered.
More information is available at Gov.uk Employers’ Liability (Compulsory Insurance) Act 1969 – A brief guide for employers.
Professional indemnity insurance covers your legal costs and any compensation payments due, if your clients take a legal action against you for a mistake you made while providing professional services to them. It’s not a legal requirement but many industry bodies and regulators require from their members to have a certain level of cover. It’s highly recommended to IT consultants, engineers, accountants, solicitors, designers and medical workers, but many other professionals could benefit from having this type of insurance.
Public liability insurance is also not required by law. This type of insurance can cover compensation payments and legal costs if a member of the public (customer, supplier, passer-by, etc.) sues your business because they’ve been injured or their property has been damaged. It’s usually purchased by tradesmen, hairdressers, shop owners, restaurant owners, even organisers and other businesses that interact with the general public.
If your business uses vehicles (cars, vans, minibuses, trucks, tippers, HGVs, etc.) to transport goods or passengers you are legally obliged to have commercial motor insurance.
STEP 8: Find out about applicable laws and regulations
Some laws and regulations apply to all businesses such as Product labelling: the law – Gov.uk or Data Protection Act 2018 – Legislation.gov.uk, but there are many laws and regulations that apply only to specific businesses such as Food safety – Gov.uk.
STEP 9: Register with Companies House
There are a few ways to register a limited liability partnership:
- By yourself, through approved software or postal application using the form LL IN01. It can take up to 5 days and the fees are £10 and £40 respectively. The same day service is available only through approved software and the fee is £30.
- Hire a company formation agent authorised by Companies House. The fee is usually £50 – £100 and it often includes registered address and members’ service address). It can take up to 24 hours.
- Hire an accountant. Not all accountants offer this service but many do. Usually, it’s more expensive than the other options but can be free if you sign up as a client. It can take up to 10 days.
Companies House will not post the Incorporation Certificate to you. They will notify you whether your application has been accepted and you’ll be able to download it form the Companies House website. More information on how to set up and run an LLP is available at Gov.uk.
STEP 10: Open a bank account for your LLP
If your members are all UK residents, you’ll have no problem to open a bank account for your LLP. Most high street banks offer a free business bank account for the first 18 months and charge about £6/month after that initial period. They also charge transaction fees.
If any of your members are foreigners or UK citizens living abroad, you will struggle to open a bank account for your business. Although, it’s perfectly legal, most UK banks don’t offer business bank accounts to non-residents due to money laundering fears. However, if at least 50% of your members are UK residents, you can open a business bank account at Metro Bank.
STEP 11: Register for the Construction Industry Scheme (CIS)
This applies to you only if you plan to work in the construction industry, as a contractor or subcontractor. You will need your Unique Tax Reference (UTR) number to register for CIS. There are different registration forms for self-employed individuals, limited companies and partnerships. The information about who needs to register and how to register is available at Gov.uk:
STEP 12: Register with HMRC for Self Assessment tax returner for VAT
Since October 2010, LLPs are automatically registered for Self Assessment as soon as they register with Companies House. However, if you do not receive a letter from HMRC with your LLP’s 10-digit Unique Taxpayer Reference (UTR) number within 14 days from your registration with Companies House, you should contact them immediately.
In addition to that, all members have to register for Self Assessment individually:
STEP 13: Register for PAYE
You must register for PAYE as soon as you become an employer. You must register before the first payday and it usually takes up to 5 days to get your employer PAYE reference number. You cannot register more than 2 months before you start paying employees.
- LLPs with less than 11 members can register online.
- LLPs with 11 members or more, can register by telephone.
After you register, you’ll have to run monthly payroll, pay Income Tax and National Insurance contributions to HMRC, and do regular reporting. Most businesses hire an accountant or payroll provider to help them with meeting their legal obligations as employers. If you prefer to do it yourself, there’s detailed information on how to set up payroll for your business on the Gov.uk website (including accepted free and paid-for payroll software).
STEP 14: Register for VAT
You must register for VAT if your annual turnover is over £85,000. If your annual turnover is below £85,000 you can register voluntarily if it would benefit your business (e.g., if you work with other VAT-registered businesses and want to reclaim the VAT).
When you first start a business, it might be difficult to estimate your annual turnover. However, you can register for VAT at any time during a tax year. If at any point you think that you may reach the £85,000 mark in the following 30 days, you should register immediately.
If you register for VAT you have to: charge the right amount of VAT by applying the correct VAT rate (standard, reduced or zero), pay any VAT due to HMRC, submit VAT returns, have a VAT account and keep VAT records. Most businesses can register online but some are required to fill in a form and post it to HMRC.
More information is available at VAT registration – GOV.UK. You can also appoint an accountant to deal with HMRC on your behalf.
THE LEGAL OBLIGATIONS OF DESIGNATED LLP MEMBERS
1. Creating and keeping partnership registers
All LLPs must keep the following registers (where applicable):
- Register of LLP members’ residential addresses (not available for public inspection)
- Register of LLP members (details of all past and present LLP ordinary and designated members)
- Register of people with significant control (PSC)
- Register of indemnities (agreements to compensate clients for potential loss or damage caused by your company)
- Register of debentures (long-term loans with a fixed interest rate)
- Register of charges (loans and mortgages secured against the LLP’s assets)
They also have to keep copies of:
- Certificate of incorporation,
- Partnership agreement.
You can keep these records at your registered office address or an alternative location (SAIL address) but you must tell HMRC where they are kept. The incorporation documents and statutory registers must be kept for the life of your partnership.
2. Keeping accurate accounting records
All LLPs must keep accounting records for the following:
- Entries showing all money received and expended by the LLP
- A record of the assets and liabilities of the LLP
- Statements of stock held by the LLP at the end of each financial year
- All statements of stock takings from which you have prepared any statements of stock
- Statements of all goods sold and purchased, other than by ordinary retail trade. This should list the goods, the buyers and sellers
Business and accounting records can be kept in hard copy or electronic format. LLPs must keep accounting records for 3 years from the date they were made, but it’s recommended to keep them for at least 6 years.
In case you have to manage a large number of transactions, you should consider using accounting software (see our free Accounting software guide for startups and small businesses) or hiring an accountant, or both.
3. Submitting annual reports to Companies House
There are two reports all LLPs must file with Companies House each year:
- Annual accounts
- Confirmation statement
Annual (statutory) accounts normally include: balance sheet, profit and loss account and notes about the accounts.
What exactly you’ll have to include in the annual accounts depends on the size of your LLP (micro-entity, small, medium, large). The accounts must be accompanied by an auditor’s report (unless the LLP is exempt from audit). You can hire a qualified accountant to help you with the Annual accounts.
The filing deadline is 9 months after your LLP’s financial year ends. Detailed LLP accounts guidance, including their preparation and filing, is available on the Gov.uk website.
Confirmation statement (previously annual return) is normally due one year after the incorporation or your last confirmation statement. Your designated members need to check whether the information Companies House holds about your LLP is still correct and submit a confirmation statement. It can be submitted online (£13) or by post (£40).
However, most changes (registered office address, members’ details, people with significant control, etc.) can’t be reported using the confirmation statement itself. Instead, you have to report separately as soon as they occur.
If you’re not sure when your LLP’s Annual accounts and Confirmation statement are due, you can search for your business on the Companies House website to find out. You can also sign up for Companies House email alerts.
THE LEGAL OBLIGATIONS OF ALL LLP MEMBERS
All members have to:
- perform their duties and meet their legal obligations set out in the Partnership agreement and the Limited Liability Partnerships Act 2000, and
- file an annual Self Assessment tax return with HMRC.
Self-Assessment tax return has to be filed by all LLP members individually on their share of profits. They will need their 10-digit Unique Tax Reference (UTR) number for this.
To file you Self Assessment tax return, you need to log in to your online account on the HMRC website (created during the registration process) and just follow the onscreen instructions. The online system can save your progress, so you don’t have to complete it in one go. All fields can be edited and changed before you click the “Submit” button.
If there is anything you’re not sure about, read the Self Assessment forms and helpsheets – GOV.UK, consult an adviser or use the HMRC helpline. It’s still possible to do a paper Self Assessment but not recommended.
Although they are required to file the Annual accounts, LLPs do not pay corporation tax. Only the individual LLP members (partners) are taxed on their share of profits and pay the same amount of Income Tax and National Insurance contributions as if they were sole traders.
A UK tax year runs from 6 April to 5 April. For example, the tax year 2023/2024 started on 6 April 2023 and will end on 5 April 2024. If you join an LLP during the 2023/2024 tax year, you need to register for Self Assessment by 5 October 2024, submit your Self Assessment tax return by 31 January 2025, and pay any tax due also by 31 January 2025.
If you miss the 31 January deadline, you will receive an immediate £100 fine, and will have to pay any tax due by 30 April. If, by the end of April, you still haven’t paid it, you will receive additional fines.
Tax-free personal allowance
You are entitled to the same tax-free personal allowance as someone who is employed. For the 2023/24 tax year, the standard personal allowance is £12,570. You only get one personal allowance, so in case you have more than one job, make sure your personal allowance is applied to the job paying you the most.
Tax and National Insurance rates
The amount of Income Tax you pay on your profits is the same as if you were employed.
|Income Tax Rate
|Personal Allowance: 0%
|Basic rate: 20%
|£12,571 - £37,700
|Higher rate: 40%
|£37,701 - £125,140
|Additional rate: 45%
Example: Your profit is £55,000 in 2023/2024 tax year. You must pay £11,946 for income tax (0% of £12,570 = £0 + 20% of 25,130 = £5,026 + 40% of 17,300 = £6,920).
You also must pay Class 2 and Class 4 National Insurance:
(if your profits are £12,571/year or more)
(if your profits are £12,571/year or more)
|9% on profits between £12,571 - £50,270
2% on profits over £50,270
Example 1: Your profit is £6,000/year – You don’t pay National Insurance
Example 2: Your profit is £12,000/year – You don’t pay National Insurance
Example 3: Your profit is £25,000/year – You pay Class 2 and Class 4 National Insurance