A limited liability partnership (LLP) is a type of business structure favoured by professional firms such as solicitors and accountants.
As with a limited company, members in an LLP cannot, in the absence of fraud or wrongful trading, lose more than they invest.
In relation to tax, however, a LLP is similar to a partnership. That is to say it pays no UK corporation tax or capital gains tax. Instead, LLP income and/or gains are distributed gross to partners as self-employed persons, rather than as PAYE employees. Partners receiving income and/or gains from an LLP are liable for their own taxation.
The members of LLPs must produce and publish financial accounts with a similar level of detail to a limited company. Statements of Recommended Practice (SORPs) are sector-driven recommendations on financial reporting, and there is a specific SORP for LLPs which must be followed when producing their accounts. The LLP SORP was updated on 17 December 2021 and is effective for periods commencing on or after 1 January 2022.
The SORP includes changes to relating to divisions of profit and it also provides guidance to help determine when an LLP has an unconditional right to avoid delivering cash or other assets to members.
There is additional guidance which sets out the basis for classifications of cash flows relating to profit distributions, along with a requirement for LLPs to disclose their accounting policy for classifying distributions of profits in the cashflow statement and that cash flows be classified consistently from period to period.
It is vital that LLPs consider the impact of the revised SORP on their financial statements as the changes may lead to a restatement of the current value of amounts due to or from members.
Because we act for a significant number of LLPs, we are able to find solutions to common problems and advise on changes to the regulatory environment and the way they may impact on your business.
If you have any questions regarding the key changes and the potential impact on your accounts, then please do get in touch with our Head of Audit and Assurance, Grahame Maughan who would be delighted to help.
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