Pillar Guide · Updated July 2026
Limited Liability Partnership (LLP) Taxation: A Complete UK Guide for 2026/27
A Limited Liability Partnership combines the limited liability of a company with tax treatment that, for most members, works like an ordinary partnership. This guide explains how LLP members are taxed individually on profit shares, the salaried member rules that can catch some members out, National Insurance and VAT, and how an LLP compares to a limited company.
What an LLP Is
A Limited Liability Partnership is a separate legal entity, incorporated at Companies House, that gives its members limited liability broadly similar to shareholders in a company, protecting personal assets beyond their investment in the LLP from most business debts. It combines this corporate-style liability protection with a tax treatment that, for genuine partners, mirrors an ordinary business partnership rather than a company.
How LLP Members Are Taxed
An LLP is generally 'tax transparent': it does not pay Corporation Tax on its own profits. Instead, each member is taxed as though they were self-employed, paying Income Tax through Self Assessment on their individual share of the LLP's profit, and the LLP itself files a partnership tax return (SA800) showing how profit was allocated between members.
The Salaried Member Rules
To stop LLPs being used to disguise what is really employment as self-employed partnership income, the salaried member rules can treat certain members as employees for tax purposes if they fail all three statutory tests: they must have significant influence over the LLP's affairs, take on meaningful financial risk if the LLP performs poorly, and receive variable, profit-linked remuneration rather than a fixed, salary-like amount. A member caught by these rules is taxed under PAYE like an employee and the LLP must account for employer National Insurance on their pay.
National Insurance for Members
Genuine self-employed members pay Class 2 and Class 4 National Insurance on their profit share in the same way as partners in an ordinary partnership or sole traders. Members caught by the salaried member rules instead have Class 1 employee National Insurance deducted from their pay under PAYE, and the LLP pays employer Class 1 National Insurance on their earnings as though they were a normal employee.
Loss Relief for Members
Members allocated a share of an LLP's trading loss can generally use sideways loss relief against their other income in a similar way to sole traders and ordinary partners, subject to restrictions that limit relief for members who are not sufficiently active in the business, aimed at preventing the use of LLPs purely as tax-loss shelters for passive investors.
VAT and Payroll
An LLP registers for VAT in its own name once taxable turnover exceeds the £90,000 threshold, in the same way as any other business. It must also operate PAYE for any genuine employees and for members caught by the salaried member rules, while payments to genuine self-employed members are made gross, without PAYE deduction, since those members account for their own tax through Self Assessment.
LLP vs Limited Company
A limited company pays Corporation Tax on its profits and shareholders are then taxed again on dividends they draw, whereas an LLP's profit is taxed only once, directly on the members, avoiding the two layers of tax a company structure can create. However, company profits can be retained and reinvested at the (often lower) Corporation Tax rate without an immediate personal tax charge, which an LLP cannot easily replicate since members are generally taxed on their full profit share as it arises, whether or not it is actually drawn out.
LLP vs Ordinary Partnership
The key difference from an ordinary partnership is liability: LLP members are not personally liable, beyond their investment, for the LLP's debts (subject to limited exceptions such as personal negligence or personal guarantees), whereas partners in an ordinary partnership have unlimited personal liability. Tax treatment for genuine members is broadly similar between the two structures, which is why many professional services firms — accountants, solicitors, and consultancies — choose an LLP structure.