LLP stands for limited liability partnership — a hybrid built from the two halves its name promises: taxed like a partnership, protected like a company. Members share profits and pay income tax as self-employed individuals, but the LLP itself is a body corporate registered at Companies House, and members' personal assets are shielded from the business's debts. Around 51,000 LLPs sit on the UK register — professional practices above all, from law and accountancy firms to surveyors, GPs and fund managers — plus a long tail of property ventures and joint ventures that chose the structure for its flexibility.
Here is what an LLP actually is, how it is taxed, and the honest comparison with a limited company.
The structure: corporate shell, partnership soul
An LLP is incorporated at Companies House (form LL IN01; £100 filed through software, £124 on paper) and exists as a legal person: it owns property, signs contracts and sues in its own name. It has no shareholders or directors — it has members, at least two of whom are designated members responsible for the statutory duties: filing accounts and confirmation statements, appointing auditors when needed, keeping the register updated. Liability is the headline: members are not personally liable for the LLP's debts beyond their capital, ending the old professional-partnership nightmare of one partner's negligence claiming everyone's houses (personal liability for one's own negligence can still arise — insurance remains essential).
The soul of the structure lives in the members' agreement — and here sits the most practical warning in this article. Without one, statutory defaults apply: equal profit shares regardless of contribution, every member managing, and no power to expel anyone, ever. An LLP running on the defaults cannot remove a destructive member except by unanimous consent including theirs. The agreement — profit sharing (which can be fully flexible year to year), decision rights, capital, retirement and expulsion — is not legal decoration; it is the constitution, and drafting it while everyone is friends is the whole trick.
How LLPs are taxed
The LLP itself pays no tax on trading profits: it is transparent, filing a partnership return while each member is taxed on their profit share as self-employed income — income tax at up to 45% plus Class 4 NIC at 6% then 2% — a combined marginal 47% at the top (rUK figures; Scottish income tax rates differ). Members pay tax on profits as they arise, drawn or not, via self assessment with payments on account; the compliance mechanics, per-partner penalties and the basis-period transition are covered in our partnership returns guide.
Two regimes police the edges. The salaried member rules reclassify LLP members who look like employees — fixed pay, no real influence, minimal capital — back into PAYE, and the recent Supreme Court ruling tightened the "significant influence" escape to rights written into the LLP agreement, making the 25% capital contribution route the reliable exit. And corporate members (companies as LLP members) bring their own anti-avoidance around profit allocation. Both are live enquiry topics; neither troubles a conventionally structured professional firm with genuinely at-risk equity members.
LLP or limited company: the real comparison
The tax arithmetic is the usual starting point. An LLP's profits are taxed in full at members' marginal rates immediately — up to 47% — but extraction is then free: drawings carry no further tax. A company pays corporation tax at 19–25%, but shareholders pay again on extraction (dividends now at 10.75%, 35.75% or 39.35%). The crossover is retention: a company wins where profits are reinvested — retained earnings suffer only 25% — while an LLP wins on full extraction, avoiding the double layer and employer NIC entirely, with no dividend paperwork (though note an LLP is not an IR35 escape hatch — partnerships can be intermediaries within the off-payroll rules too). That is why capital-hungry trading businesses incorporate while fully-distributing professional practices stay as LLPs.
Beyond tax: LLPs offer profit-sharing flexibility companies cannot match (this year's allocation can differ from last year's by agreement, no share classes required), no employer NIC on members' shares, and easy admission and retirement of members. Companies offer share schemes (EMI has no LLP equivalent), investor familiarity, and lower rates on retained profit. Conversion from LLP to company is a business transfer, not a form — doable, with reliefs, but not casually reversible.
The compliance picture
LLPs live under company-style transparency: accounts filed at Companies House (small-LLP thresholds match companies — £15 million turnover, £7.5 million balance sheet — with audit exemption below), a confirmation statement, and accounts prepared under the LLP SORP, freshly updated for the 2026 FRS 102 changes, which bring leases onto LLP balance sheets like everyone else's. Members' current and capital accounts, drawings versus allocations, and the annual reconciliation between them are where LLP bookkeeping goes wrong in practice — and where clean records make retirements and admissions painless instead of contentious.
Acumon acts for LLPs across the lifecycle — incorporation and members' agreements (with lawyers), accounts under the SORP, tax compliance for the LLP and its members, and structure reviews when the LLP-versus-company question deserves fresh numbers — with our professional practices team covering the firms where LLPs are the native form. If your LLP is still running on the statutory defaults, fix that before anything else in this article.