How is income from an LLP taxed in the UK?

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An LLP (Limited Liability Partnership) is treated for UK tax purposes as a transparent entity -- each member is taxed on their own share of LLP profits as if carrying on a business in partnership. The LLP itself does not pay corporation tax or income tax. **Individual member -- self-employed treatment:** Members who are treated as self-employed (not salaried members) pay: - Income Tax on their profit share at 20%/40%/45% through Self Assessment - Class 4 NI at 6% on profits between £12,570 and £50,270, then 2% above **Salaried members (ITTOIA 2005 s.863A rules):** From April 2014, HMRC introduced rules to prevent LLPs using the partnership model to avoid PAYE/NI on what are effectively employees. An LLP member is a "salaried member" (taxed as an employee via PAYE) if they meet all three of these conditions: 1. Arrangements exist under which substantially all their remuneration is "disguised salary" (fixed regardless of LLP profits) 2. They have no significant influence over LLP affairs 3. They contribute less than 25% of their anticipated annual remuneration as capital to the LLP Salaried members are taxed as employees -- employer and employee NI applies, and the LLP must operate PAYE. **Corporate members of LLPs:** If a company is a member of an LLP, the company pays Corporation Tax on its share of LLP profits (not the member individual). This structure is used in professional service firms and property investment LLPs. **VAT and LLPs:** The LLP must register for VAT if turnover exceeds £90,000, and files VAT returns as a single entity. **Losses:** Partners/members can offset trading losses from the LLP against their other income, subject to the sideways loss relief rules (limited to £50,000 or 25% of income, whichever is higher) and the basis period rules.

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