I've been invited to join an LLP...

**SueEllen** · 28 September 2012, 17:49

There was a poster who worked through an LLP a couple of years back hopefully he is still on the site to answer your questions. (One thing is LLP is too short to search.)

One of the issues he had was agencies not accepting that his entity was a legal way of working.

**Jessica@WhiteFieldTax** · 28 September 2012, 18:29

Its not common

Its not a common way of working contract wise and there tends to be a reason for that; LLPs have their place, but generally not for consulting / contracting type businesses.

I looked at a outside IR35 scenario for a client on £100,000 gross, and assuming low salary / high dividend, the LLP came out £5k or so worse off tax wise due to NIC.

As the poster above as said, agents by and large won't be used to LLPs either.

If you are working direct, then a LLP probably lowers your IR35 risk, solely they don't attract HMRC interest in the same way as a limited company.

If the LLP is shared with others, then you need to think about the risks of your monies getting caught up with others debts / defaults / problems - the "Limited" aspect applies only to external funds.

**BrilloPad** · 28 September 2012, 18:58

Originally posted by SueEllen View Post

There was a poster who worked through an LLP a couple of years back hopefully he is still on the site to answer your questions. (One thing is LLP is too short to search.)

One of the issues he had was agencies not accepting that his entity was a legal way of working.

A very unfortunate restriction of cuk.

But thanks to NickFitz, it is possible to search! Just type this into google :-

llp site:http://forums.contractoruk.com/

Worked for me! Please give any +ve rep to Nick....

**northernladuk** · 28 September 2012, 20:47

Originally posted by SueEllen View Post

There was a poster who worked through an LLP a couple of years back hopefully he is still on the site to answer your questions. (One thing is LLP is too short to search.)

One of the issues he had was agencies not accepting that his entity was a legal way of working.

You do know there is a thread on how to search using google here don't you?

http://forums.contractoruk.com/welco...uk-forums.html

<ducks and runs>

**Wanderer** · 28 September 2012, 23:41

Originally posted by Magrat View Post

I've been contacted by an LLP that appears to be operating like an umbrella (ie. lots of partners and they do all the admin). I've done some checking and it all looks above board, so I'm tempted.

Will the LLP net you more money than the umbrella? If not then why bother? If so then how does that work....

**malvolio** · 29 September 2012, 07:52

Originally posted by Magrat

I've been invited to join an LLP...

Why?

Serious question - why have you been invited? To get you more pay or to earn them more money from fee-paying partners? You need to do a little digging.

**cojak** · 29 September 2012, 08:14

The OP does have a good question though - is anyone out there actually in an LLP?

(PS. We 'll be a bit suspicious of first time posters promoting a particular LLP

)

**craig1** · 29 September 2012, 09:00

I operate through an LLP and have done for many years. Suits me perfectly as my partner is my wife who is also a contractor! There are plenty of benefits of operating through an LLP (no PAYE, no Corp Tax, etc. meaning far fewer HMRC interactions!) but some drawbacks (I pay about 2-3% more tax than a typical contractor going through their own Ltd Co). Any tightly run LLP will net you far more than an umbrella, even a loosely run one means you have no employer's NI to pay.

The biggest bit of advice I'd give if anyone is considering a LLP partnership with someone they don't know or trust is that you MUST have a bulletproof contract. Really. No exceptions, no vague terms that you both agree off the record will operate in a certain way. You MUST get a lawyer involved.

Things to check:
1. Is it an "eat what you kill" contract? That is, do you take profits that you earn. Walk away from any profit sharing deal.
2. Who can authorise payments to members? Who controls the purse strings? Can they withhold payment for any reason? How can you override such a block?
3. Can you see the books at any time? Legally, as a member of an LLP you're responsible for them so you should be able to see them on request. This does mean you'll get to see what everyone else earns and they can see your earnings.
4. Must you make capital contributions? If not and you're taking home all your profits then where do the company's cash reserves come from?
5. What operating expenses will be deducted from your earnings? Percentage figure or fixed fee? Is this a zero sum figure, i.e. all deductions from members exactly equals expenses? If not, who gets any benefit from extra deductions from you?
6. Are there any salaried employees? Who controls their salaries?
7. Are there any LLP members (Partners) who will earn from your contributions? e.g. administrators, organisers, the people who set up the LLP?
8. What happens if you're not earning, do you still have to contribute?
9. Who can authorise capital spending? Ideally no-one outside of a properly constituted partnership vote with a no-dissenters rule.
10. Who can authorise raising funds through loans? As above. A properly constituted LLP of contractors should NEVER need a loan. If they do then there's something dodgy going on.
11. Who are the Designated Members? Who can appoint them? Hugely important as they are responsible for annual returns, accounts, etc.
12. What are the rules on leaving? Can you just resign and walk? What about money left in the company? Some big LLPs (law firms, accountancies, etc) have capital withdrawal restrictions meaning you can't get your money out on leaving for a considerable time.
13. Can you contract on behalf of the LLP without permission? If so, really? Do you really want to be legally liable for a company where others can bind you without your permission? Yes, it's limited but you're still likely to have cash in the bank there at times that could be frozen due to an idiot contract backfiring. Also, these days breaking limited protection isn't that much of a trouble for HMRC if they can prove there's any dishonesty and that they could get their money but for that pesky limited status.

I could go on for quite a while but hopefully I've given an indication of what a minefield it is to go into business with others you just don't know or trust.

Then there's the drawback mentioned above. Some agencies, even some of the biggest ones, will just not work with LLPs. Typically they think they're not limited companies, even though LLP has limited in its name, and even their "legal" staff will not recognise them as valid contractor companies. I have a subsidiary Ltd company for contracting through these daft agencies but it's a severe pain the backside; I have a letter of agreement with HMRC that it's essentially a pass-through company to my LLP so will have no PAYE or Corp Tax liabilities and I had to set up group VAT status to make my life more simple.

Finally though, laugh loudly at anyone who suggests that this is a way to take home lots of money avoiding HMRC's grasp. They take a far greater interest in LLPs than people think and will think nothing of trashing the LLP's books to get to the bottom of one member's financial affairs. For example, if you have a fellow LLP member who isn't that good at putting aside his tax money and fails to pay then HMRC will want to know exactly how much he must pay, that means they'll dig into the LLP's accounts and won't restrict themselves to the small component of tax that is the dodgy guy's affairs, they will dig into yours as well. The first hint of anything iffy and then you're all getting nice brown letters from HMRC inviting themselves into your life for a "chat".

**cojak** · 29 September 2012, 09:37

Excellent post, thanks Craig

I've been invited to join an LLP...