A Simple Guide to LLP Taxation
Do LLPs Pay Corporation Tax?
Limited Liability Partnerships (LLPs) are a popular business structure in the UK, offering the protection of limited liability alongside the flexibility of traditional partnerships. But when it comes to tax, confusion often arises—especially around whether LLPs pay Corporation Tax.
In most cases, LLPs don’t pay Corporation Tax. Instead, they are treated as “tax-transparent,” meaning the business itself doesn’t pay tax on its profits. Instead, those profits are split among the members, who each pay tax based on their individual circumstances. Individual members pay Income Tax and National Insurance through Self Assessment, while corporate members include their share in their company tax returns and pay Corporation Tax.
However, there are exceptions. If the LLP is not actively trading, is earning passive income, or includes corporate members, certain Corporation Tax rules may still apply. Additionally, if a member receives a fixed income, lacks control over the business, and bears little financial risk, HMRC may classify them as a salaried member—meaning the LLP must deduct tax and NICs through the PAYE system.
LLPs are still required to meet key compliance obligations, including filing annual accounts and a confirmation statement with Companies House, and submitting a partnership tax return to HMRC. Each member must also file their own tax return. While LLPs typically avoid Corporation Tax, understanding the rules—and when they do apply—is essential for staying compliant and tax-efficient.
