What is a limited liability partnership? LLP explained

A limited liability partnership is a business structure that gives its members the limited liability of a company and the tax treatment of a partnership. The LLP is a separate legal person, so it owns its own assets and carries its own debts, but it pays no corporation tax: profits are taxed on each member individually through Self Assessment. It needs at least two members, at least two of whom are designated members with additional filing duties, and it registers at Companies House and files accounts there like a company.

The structure was created by the Limited Liability Partnerships Act 2000 and came into use in April 2001. It remains uncommon: at the end of March 2026 there were 51,301 LLPs on the Companies House register, 0.90% of all registered entities. Most are professional firms – solicitors, accountants, surveyors, architects, consultancies and investment managers – because the structure suits businesses whose value sits in the people rather than in retained capital. (Explore the sole trader or limited company structure discussion in detail)

All figures below are for the 2026/27 tax year and are current as at September 2026.

How an LLP differs from a limited company

The two structures share almost everything at Companies House and almost nothing at HMRC.

	Limited liability partnership	Private limited company
Legal personality	Separate legal person	Separate legal person
Owners called	Members	Shareholders
Managers called	Members	Directors
Share capital	None. Members contribute capital by agreement	Shares, with a nominal value
Who pays tax on profit	Each member, personally	The company
Tax on profit	Income tax at 20%, 40% or 45%, plus Class 4 National Insurance	Corporation tax at 19% to 25%
Tax on taking money out	None. Profit is taxed when earned, not when drawn	Dividend tax at 10.75%, 35.75% or 39.35% on top of corporation tax
Retaining profit in the business	No tax advantage. Members are taxed on their share whether or not they draw it	Taxed once at 19% to 25% until it is extracted
Minimum people	Two members	One director, one shareholder, can be the same person
Public accounts	Yes, at Companies House	Yes, at Companies House
Outside investment	Difficult. No shares to issue, and EIS, SEIS, VCT and EMI all require a company with share capital	Straightforward

Three differences decide the choice in most cases: how many times profit is taxed, whether profit can be left in the business untaxed, and whether the business can issue shares.

There is no second layer of tax. A company’s profit is taxed at 19% to 25%, and what the owner takes out is taxed again as a dividend. An LLP’s profit is taxed once, on the members, at their own income tax rates. For a business that distributes everything it earns, that single layer is usually the cheaper outcome.

There is no deferral. The company’s advantage is the mirror image: money left inside a company is taxed once and stays there. Members of an LLP are taxed on their allocated share of profit in the year it arises whether they draw it or not, so an LLP that wants to build a cash reserve funds it out of income that has already been taxed at up to 45%. A business that intends to reinvest heavily is usually better off as a company.

There are no shares. An LLP cannot issue equity, and the venture and angel reliefs investors expect – EIS, SEIS, VCT and EMI share options – are all built around companies with share capital. An LLP that later wants outside investment generally has to incorporate a company and transfer the business to it, which is a disposal with its own tax consequences.

How an LLP differs from an ordinary partnership

An ordinary partnership under the Partnership Act 1890 is not a separate legal person in England and Wales. It has no registration, no public filings and no protection.

	Limited liability partnership	Ordinary partnership
Governing law	Limited Liability Partnerships Act 2000	Partnership Act 1890
Separate legal person	Yes	No, in England and Wales
Liability for business debts	Limited to what a member has agreed to contribute	Unlimited, joint and several
Registration	Companies House	None
Public accounts	Yes	No
Confirmation statement	Yes	No
Tax treatment of profits	Identical	Identical
Cost to run	Filing fees, accounts preparation, usually an accountant	Lower

The tax outcome is the same in both. The trade is liability protection and privacy: an LLP protects personal assets, and in exchange its accounts and its members’ names are on a public register. A partnership keeps its finances private, and in exchange every partner is personally liable for the whole of the firm’s debts, not merely their share.

The protection is not absolute. A member remains personally liable for their own negligence, for any debt they have personally guaranteed, and for wrongful or fraudulent trading. Under section 214A of the Insolvency Act 1986, as applied to LLPs, a liquidator can claw back withdrawals a member made in the two years before winding up if that member knew, or had reasonable grounds to believe, that the LLP was or would be made insolvent by the withdrawal. Drawings taken out of a failing LLP can be recovered.

How LLPs are taxed

Members pay income tax and Class 4 National Insurance

Each member is treated as self-employed and taxed on their share of the LLP’s profit, allocated according to the members’ agreement. The LLP files a partnership return, form SA800, which reports the profit and how it was divided. Each member then reports their own share on the partnership pages of their Self Assessment return, form SA104.

For 2026/27, a member pays:

Charge	Rate	Applies to
Income tax, basic rate	20%	Profit share from £12,570 to £50,270
Income tax, higher rate	40%	£50,270 to £125,140
Income tax, additional rate	45%	Above £125,140
Class 4 National Insurance	6%	£12,570 to £50,270
Class 4 National Insurance	2%	Above £50,270

Class 2 National Insurance stopped being a compulsory charge on 6 April 2024. A member with profits above the small profits threshold of £7,105 is treated as having paid it and gets the state pension credit automatically. Below that threshold it can be paid voluntarily at £3.65 a week to protect the record.

The tax is due on the same dates as any other Self Assessment liability: 31 January and 31 July payments on account, with the balancing payment on the following 31 January.

A member is taxed on the profit allocated to them, not on the money they take out. Drawings are not a taxable event. An LLP that allocates £90,000 to a member who draws £50,000 has still created a tax liability on £90,000 for that member, and the £40,000 left in the business has already been taxed at the member’s marginal rate.

Why there is no corporation tax

Section 863 of the Income Tax (Trading and Other Income) Act 2005 treats an LLP carrying on a trade or profession with a view to profit as transparent for tax: the business is treated as carried on in partnership by its members, and the LLP itself is not treated as a separate person. Corporation tax never engages, because there is no taxable company-level profit to charge.

Transparency depends on the LLP actually trading. If an LLP goes into liquidation, section 863(4) switches transparency off, and from that point the LLP is taxed as a body corporate. The capital gains position is harsher still: section 59A(2) of the Taxation of Chargeable Gains Act 1992 ends the look-through treatment on winding up, so assets held by the LLP at that point are treated as held by it rather than by the members. An LLP holding appreciated property should take advice well before it stops trading, not after.

An LLP set up purely to hold investments rather than to trade also falls outside section 863 and is taxed differently.

The salaried member rules

Sections 863A to 863G of ITTOIA 2005, in force since 6 April 2014, exist to stop a business turning employees into members to avoid National Insurance. A member is reclassified as an employee, and taxed under PAYE with employer Class 1 National Insurance at 15% on top, only if all three of these conditions are met:

• Condition A. At least 80% of what the member is expected to receive is “disguised salary”: fixed, or varying without reference to the profits or losses of the LLP as a whole.
• Condition B. The member has no significant influence over the affairs of the LLP.
• Condition C. The member’s capital contribution is less than 25% of their expected disguised salary.

Failing any one of the three keeps the member self-employed. In practice most firms manage Condition C, because increasing a member’s capital contribution above the 25% line is the simplest lever to pull.

Condition B was narrowed by the Supreme Court in HMRC v BlueCrest Capital Management (UK) LLP, decided on 1 July 2026. The Court held that significant influence has to derive from legally enforceable rights over the management of the LLP under its agreement, and that the de facto influence a senior individual may hold – a large trading book, commercial weight inside the firm – does not by itself satisfy the condition. Firms that relied on operational seniority to keep members outside the rules should have their agreements reviewed against the decision.

The cost of getting this wrong falls on the LLP, not the member. It is the employer’s National Insurance and the PAYE that HMRC pursues.

Who has to do what: members and designated members

An LLP needs at least two members to incorporate, under section 2(1)(a) of the Act. Members can be individuals or companies, and there is no upper limit.

At least two of them must be designated members. Designated members carry the administrative and filing duties: appointing auditors where required, signing and filing the accounts, filing the confirmation statement, notifying Companies House of changes to membership or the registered office, and acting for the LLP on winding up. All members share the general duties; the designated members carry the ones with penalties attached.

Two provisions are worth knowing before they apply to you.

If fewer than two members are designated, section 8(2) makes every member a designated member automatically. Losing a designated member without appointing a replacement therefore does not leave the LLP without one. It gives the filing duties, and the criminal liability attached to failing to perform them, to everyone.

Failure to file is a criminal offence by the designated members personally. The obligation to deliver accounts and the confirmation statement sits on them individually, not only on the LLP, and prosecution is of the individual.

An LLP can continue with one member, but the protection lapses. Section 4A allows a single-member LLP to carry on. If it does so for more than six months, that member becomes jointly and severally liable with the LLP for debts contracted after the six month point. The limited liability that the structure exists to provide simply stops applying to new debts.

From 18 November 2025, identity verification at Companies House applies to all members of an LLP, not only the designated ones. New members verify before appointment. Existing members verify by the LLP’s next confirmation statement date, which means the transition completes across the register by around 18 November 2026.

What an LLP must file

Filing	Where	Deadline
Annual accounts	Companies House	9 months after the accounting reference date
First set of accounts	Companies House	21 months after incorporation
Confirmation statement, form LL CS01	Companies House	Within 14 days of the end of the review period
Partnership tax return, form SA800	HMRC	31 January after the tax year, if filed online
Personal return with partnership pages, SA104	HMRC, by each member	31 January after the tax year, if filed online
Changes to members, registered office or name	Companies House	Within 14 days

LLP accounts follow the company rules. The Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 apply Part 15 of the Companies Act 2006 to LLPs, so the small and medium-sized regimes, the audit exemption and the filing deadlines all work the same way. The size thresholds were uplifted for financial years beginning on or after 6 April 2025: an LLP is small if it meets two of turnover not more than £15 million, balance sheet total not more than £7.5 million, and not more than 50 employees.

Late filing penalties for accounts are charged on the LLP and escalate with delay: £150 up to one month late, £375 from one to three months, £750 from three to six months, and £1,500 beyond six months. The penalty doubles if accounts were also filed late for the previous financial year.

How to set up an LLP

Registration is on form LL IN01. There is no online incorporation route for LLPs at Companies House, so the route is either third party software or paper.

Method	Fee	Typical timing
Software filing	£100	Usually a few working days
Paper form LL IN01	£124	Slower
Same-day paper service	£156	Same working day if received by 3pm

The form asks for the LLP’s name, its registered office address, the details of every member, which of them are designated members, and the people with significant control. The name must end in “limited liability partnership” or “LLP”, or the Welsh equivalents, and is subject to the same restrictions on sensitive and identical names that apply to companies.

The members’ agreement, and what happens without one

There is no legal requirement to have a written LLP agreement. If there is none, the default provisions in regulations 7 and 8 of the Limited Liability Partnerships Regulations 2001 govern the relationship, and three of them surprise most people:

• Profits and capital are shared equally, regardless of what each member contributed. A member who put in £90,000 and a member who put in £10,000 own the same share and take the same profit.
• No member is entitled to remuneration for acting in the business. Working full time in the LLP does not, by default, earn anything beyond an equal share of the profit.
• No majority can expel a member. Without an express power in an agreement, the other members cannot remove someone, however serious the disagreement.

The defaults also say nothing about what happens when a member dies, retires or wants to sell their share, how capital is returned, or how disputes are resolved. A written agreement is the point at which most of the structure’s flexibility is actually exercised, and it costs less to draft at the outset than to litigate later.

Alongside the agreement, the practical setup list is short: register the LLP for VAT once taxable turnover exceeds £90,000 in a rolling 12 months, register for PAYE before the first employee is paid, and make sure each member registers for Self Assessment as a partner if they are not already.

When an LLP is the right choice, and when it is not

An LLP tends to fit where:

• Two or more people run a professional or service business together and want liability protection without becoming a company.
• Profits are distributed each year rather than retained.
• Profit shares need to vary between members, or change from year to year, in ways that fixed shareholdings make awkward.
• Some members are corporate rather than individual, which is common in group and joint venture structures.
• The regulatory position requires it, as it does for some professional firms whose rules limit the structures they may use.

A company is usually better where:

• Profit will be reinvested rather than drawn, so the single corporation tax charge and the deferral matter.
• Outside investment is likely, because EIS, SEIS, VCT and EMI need share capital.
• There is one owner. An LLP needs two members, and running one on a single member for more than six months costs that member their limited liability for new debts.
• Share options are part of how staff are paid.

An ordinary partnership is usually enough where the business carries little liability risk, the partners would rather keep their accounts private, and the cost and formality of Companies House filing is not worth the protection.

Switching later is possible in either direction but is not free. Moving a business from an LLP into a company is a disposal of the business for tax purposes, and incorporation relief and the position on goodwill both need checking before anything moves.

Frequently asked questions

Can an LLP have just one member?

It can continue with one, but it cannot be formed with one: incorporation requires at least two members. If an LLP carries on with a single member for more than six months, that member becomes jointly and severally liable with the LLP for debts contracted after the six month mark.

Do LLPs pay corporation tax?

No. A trading LLP is transparent for tax, so profits are taxed on the members through Self Assessment rather than on the LLP. The exception is an LLP in liquidation, which is taxed as a body corporate from that point.

Are LLP accounts public?

Yes. An LLP files accounts at Companies House on the same basis as a company, and they are available to anyone. Small LLPs can file reduced information, but there is no option to keep accounts private. This is the main trade for limited liability, and it is why some firms stay as ordinary partnerships.

Is an LLP member an employee?

Not normally. Members are self-employed for tax and National Insurance, and pay Class 4 rather than Class 1. The salaried member rules reclassify a member as an employee only where all three of Conditions A, B and C are met, and failing any one of them keeps the member self-employed.

How much does it cost to set up an LLP?

£100 to file through software, £124 on paper, or £156 for the same-day paper service. Those are the Companies House fees only. Most LLPs also pay for a members’ agreement to be drafted, which is optional in law and worth having in practice.

Can an LLP be a member of another LLP?

Yes. Members can be individuals or bodies corporate, including companies and other LLPs, and there is no limit on the number of members.

What is the difference between a member and a designated member?

Every designated member is a member. Designated members additionally carry the filing and administrative duties: accounts, the confirmation statement, notifying Companies House of changes, and appointing auditors. An LLP must have at least two, and if it has fewer, every member becomes one automatically.