Limited Liability Partnership (LLP) - tax efficiency

[anorak]

Increase in Corporation Tax

With the Budget increase in Corporation Tax up to 22%, it makes this question even more pertinent!

[oraclesmith]

At a rough idea I'd say that its not any more tax efficent. If it was more people would be doing it. Not sure if an LLP can be set up with one person only. I think you need at least 2 shareholders so would have to pay divs to that person.

You don't have shareholders or dividends, the taxation is more like that of a sole trader.

Would just having the limited liability benefits be worthwhile for contractors? In my opinion no, because there are hardly any of the cashflow issues that you'd have with a company that purchases stock or that has multiple permanent employees.

[oraclesmith]

I guess it depends on what you're doing and how much you earn.

Eg. most contractors won't be doing a lot of mileage each year - at least not much beyond travelling to to the client site and back and in London they'd mainly use public transport.

Also, if you're bringing in, say £60-80k per year, then the benefit that goes with dividends is significant compared to sole trader status. On the other hand if you're only bringing in say £30k, then I guess it's marginal. Similarly, accountants fees are fixed regardless of fee earnings.

[Sockpuppet]

At a rough idea I'd say that its not any more tax efficent. If it was more people would be doing it. Not sure if an LLP can be set up with one person only. I think you need at least 2 shareholders so would have to pay divs to that person.

[anorak]

Has anyone recently compared the tax efficiency of operating as an LLP compared to a limited company?

I've operated as a limited company for some years now, but am now considering the alternatives. I have been advised by agencies that they have no legal problem in using contractors through LLPs. My understanding is that that partners are taxed in the same way as sole traders, but have most of the liability protection benefits that are afforded by a limited company.

Why am I condsidering changing...

1. Car expenses that can be claimed as an employee of my limited company are limited to 40/25p per mile (unchanged for years!). When I used to operate as a sole trader I used to offset 90% of my total car expenses as 90% of my mileage was business related. I presume that the situation is the same with an LLP.

2. With an LLP I could utilise funds being accumulated to pay future tax bills in an Offset Mortgage. This is not possible with a limited company.

3. Assuming the accounting requirements for an LLP are no more complicated than a sole trader, I could do my own accounts. As a limited company I pay an accountant over £1,000 a year for the privilige.

4. The possible impact of S660.

I would welcome the comments of those more knowledgeable than myself in these matters.