Comparison · Business Structure · 2026
LLP vs Limited Company UK 2026: Tax, Liability and Which to Choose
A Limited Liability Partnership (LLP) and a private limited company both give owners protection from personal liability for business debts — but they are taxed in completely different ways. LLP profits pass straight through to members and are taxed as self-employment income; a limited company pays Corporation Tax first, then shareholders pay dividend tax on what they draw. Here is how the two compare for 2026/27.
TL;DR - 30-Second Summary
- - LLP: tax-transparent, members taxed as self-employed on their profit share, no Corporation Tax, needs 2+ members
- - Limited company: pays Corporation Tax (19%-25%) on profits, shareholders taxed on dividends drawn, can retain profit and have a single director
- - Best for LLPs: professional partnerships (law, accountancy, architecture) wanting limited liability plus partnership-style profit sharing
Side by Side: LLP vs Limited Company
| Feature | LLP | Limited Company |
|---|---|---|
| Liability | Limited to capital contribution | Limited to share value |
| Minimum members/owners | 2 designated members | 1 director/shareholder |
| How profits are taxed | Members taxed individually as self-employed (income tax + Class 4 NI) | Company pays Corporation Tax; shareholders pay dividend tax on withdrawals |
| Corporation Tax | None (tax-transparent) | 19% up to £50,000 profit, 25% above £250,000 |
| Can retain profit tax-efficiently | No — members taxed on allocated share whether drawn or not | Yes — profit stays in the company until distributed |
| Companies House filing | Yes — annual accounts + confirmation statement | Yes — annual accounts + confirmation statement |
| National Insurance on income | Class 4 NI: 6% (up to £50,270), 2% above | No NI on dividends; NI applies only to salary |
| Typical use case | Professional partnerships (law, accountancy, surveying) | Trading businesses, startups, single founders |
What Is an LLP?
A Limited Liability Partnership combines the limited liability of a company with the tax transparency and profit-sharing flexibility of a traditional partnership. Introduced by the Limited Liability Partnerships Act 2000, LLPs are most common among professional services firms — solicitors, accountants, architects and surveyors — where partners want to share profits directly according to a partnership agreement rather than through salary and dividends.
Each member is taxed as if self-employed on their allocated share of profit, reported through their own Self Assessment tax return. The LLP itself files a partnership return but pays no Corporation Tax. This transparency also means members can offset trading losses against other personal income in some circumstances, which is not possible with a limited company.
What Is a Limited Company?
A private limited company is a separate legal entity from its owners. It can be formed by a single director/shareholder, pays Corporation Tax on its profits, and distributes remaining profit to shareholders as dividends (taxed at 10.75%, 35.75% or 39.35% depending on the shareholder's income tax band in 2026/27) or pays directors a salary through PAYE.
Because the company is a distinct legal person, profit can be retained inside the company and taxed only at Corporation Tax rates, deferring personal tax until money is actually withdrawn. This makes limited companies more flexible for businesses that want to build up reserves or invest profit back into the business.
Worked Example: £100,000 Profit
An LLP member allocated £100,000 of profit pays income tax and Class 4 NI on the full amount in the year it is earned — there is no way to defer this even if the cash stays in the business bank account. A limited company earning £100,000 profit pays Corporation Tax first (marginal rate applies between £50,000 and £250,000, effectively around 26.5% on profit in that band after marginal relief), and the shareholder only pays personal tax on whatever dividend they choose to draw — potentially leaving a large amount taxed only at the company rate if it stays retained.
This is the core trade-off: LLP members get simpler, single-layer taxation with full transparency but no deferral; limited company shareholders get a two-layer system (Corporation Tax then dividend tax) but with the option to defer the second layer indefinitely by leaving profit in the company.
Who Should Choose What?
- - You are forming a professional partnership with 2+ partners
- - You want profit shared according to a flexible partnership agreement
- - You want simple, single-layer taxation with no dividend tax step
- - You are a sole founder or want a simple single-owner structure
- - You want to retain profit in the business tax-efficiently
- - You plan to raise investment or issue different share classes