Frequently asked questions
How do I benefit from joining the LLP?
You will have the status of ‘partner’ in the business. There will be increased transparency regarding business performance and profits with quarterly meetings with representative LLP members. All LLP members are actively encouraged though to participate in and contribute to the business as a whole. You will be entitled to a share of profits and will thus participate in the financial success of the business. Whilst the opportunity to join the LLP is not compulsory the business will thrive from the financial benefits the ‘partnership model’ offers and this will, in turn, benefit the LLP members through their profit shares and through the increased opportunities and investments afforded within the business.
I am currently in the process of a mortgage application; would I have to inform the mortgage company if I decided to sign up to the LLP?
The way that the LLP model works means that for the member, LLP membership is no different than being a PAYE employee. OC regularly supports many LLP members through the mortgage application process. All they ask is that you liaise with them to ensure the correct boxes are ticked. For mortgage purposes, you are an ’employee’ and not ‘self-employed’.
Do I get proof every year that my tax return has been completed correctly?
Yes, OC will provide this.
Please explain how we are considered self-employed only for tax purposes and in no other way?
The way that ‘partnerships’ are taxed has always been on the ‘self-employed’ basis and LLPs are treated in the same way. However, LLPs are a new construct (since 2001) and the law is rapidly evolving in the direction of treating LLP members as employees for all other purposes. For example, the “Whistle Blowing Protections” (Supreme Court decision in 2014). Furthermore, we have ensured that all employee rights are preserved and in the LLP Members Agreement.
So, who actually pays the tax if we are considered self-employed?
The LLP takes full responsibility for paying all of the tax owed by you.
I have only been with the company a few months, would I still have the same rights as people who have worked here from the start?
You will have the exact same rights as you would have as an employee of the existing company. Others who have worked for the company for longer will have their comparable rights preserved too. No one will be worse off, and everyone will be better off due to the profit share and other potential benefits.
From an employee’s perspective, what are the downsides of signing for an LLP except for the tax return?
None – the only downside is an added admin burden, most of which OC carry out for you. Note that there is a benefit in that OC will help you (almost always without charge) with any personal tax and financial queries for you and your family members on a confidential basis.
Is there any liability to me personally for being a member of the LLP?
No, LLP stands for Limited Liability Partnership, this means your total liability is limited to the investment you make in the Partnership in the first place.
So, I need to make an investment into the LLP?
No, the LLP will make an investment on your behalf. This is called a “capital contribution” and is roughly equal to your annual salary. This is needed to ensure that you have “capital” in a partnership company.
What paperwork will I have to agree to?
Unfortunately, there’s quite a bit and it’s a little complicated. The good news is it will all be prepared for you.
Here’s a brief description of each:
Deed of Adherence
This is an agreement between you and XYZ Partnership LLP which you sign on joining the Partnership. It sets out the terms under which you will be a member of the partnership with your personal details including your Capital contribution. This is the means by which you “sign-up” to the LLP Members Agreement which sets out the “constitution” of the LLP applicable to all Members. A copy of the LLP Members Agreement will be provided along with the other paperwork.
The Compromise Agreement reflects the switch from your existing employment terms to joining the Partnership. It is the counterpart to the Deed of Adherence and provides for a capital sum as “compensation” payable on the change of employment status, the compensation is not paid directly to you but is used to fund your capital contribution.
Intellectual Property Agreement
The Intellectual Property Agreement provides for a capital sum as payable to enable the existing business to continue to use your intellectual property when you are no longer an employee. The amount is not paid directly to you but is used to fund your Capital contribution.
As discussed above, being a member of a partnership means having to complete a Personal Tax return each year. This will be done for you by OC. Form SA401 lets HMRC know that you need to complete a Personal Tax return. Remember, that under the Members Agreement all personal Tax, including National Insurance contributions are paid on your behalf by the LLP.
This form allows OC to act on your behalf as your agent and manage your tax affairs with HMRC. It means they can complete and submit your annual Personal Tax return for you.
Would there ever be any request for a personal contribution to the business?
No, that is the whole point of the Limited Liability Partnership.
Would we be held responsible if the business goes bust?
No. Only the ‘Designated Members’ have this responsibility – the equivalent of limited company directors.
If there is no profit to share, would we still get a profit share, and would we be expected to make contributions?
If there is no profit you will still be entitled to your monthly pay as usual, but there is no additional profit share if there is no profit. Under no circumstances can you be required to make a contribution.
Do all staff members have to sign for the company to become an LLP?
No, it is by invitation only and is intended as a privilege which confers enhanced status. It is not by any means compulsory to join. Think of it as a promotion which you do not have to accept.
Will there be repercussions if staff members don’t join the LLP?
No, any team members not joining the LLP now will continue as they are. They will not be entitled to the profit share while they are not LLP Members. They may be offered the opportunity to join later if they don’t accept now.
If we are classed as self-employed for tax purposes and we claim expenses shouldn’t this reduce our tax and not the company’s?
The structure is designed to accrue any tax benefits to the business so as to help increase overall profits which will, in turn, be distributed to the partners. Some LLPs offer a direct immediate incentive to partners to encourage them to prepare details of eligible expenses even though the tax benefit may not crystallise for over a year. However, you will definitely benefit one way or another from being able to offset certain additional expenses.
What is the protocol for leaving the company as part of the LLP?
Leaving the business is exactly the same process as for an employee with the same notice period, etc. The only difference is that you would need to keep in touch with OC to ensure your tax returns are completed correctly after you have left.
The company is promising that there will be the funds set aside to cover all the income tax/NI liabilities that an individual is due to pay. How is this guaranteed?
As part of the membership agreement, the LLP is liable for any tax due by members during their time at the LLP. The designated members will be responsible for ensuring that any tax / NI liabilities are paid when due on behalf of all other LLP Members, in much the same way as they are responsible for collecting and paying your current PAYE taxes.
If I am given more responsibilities does my role in the company change and if so is this reflected in my pay?
The ethos behind LLP Membership is to encourage collaborative team working through a sense of shared responsibility for, and a greater stake in, the business and its profits. While your sense of overall responsibility should increase, your day to day responsibilities in the business are not affected by becoming a partner in the LLP.
Please explain how the LLP would affect the following: Holiday pay/ entitlement; change of contracted hours; change of pay; redundancy; overtime; sickness; entitlement/pay; maternity / paternity entitlement/pay, other state benefits?
All of the above are exactly the same as now apart from the enhanced profit share. The key point is that this is designed as an “upside only” opportunity. The LLP pays OC to do all the hard work in the background to ensure it all works and delivers the efficiencies both culturally and financially to the business to make it affordable and to ensure there is more profit to distribute to everyone in the team.
Will I get a payslip and how will I be paid?
You will continue to get payslips as normal showing your income and you will continue to be paid on exactly the same day each month, at exactly the same amount as normal.