Using a UK LLP

Non-UK residents can now, in certain circumstances, use a LLP as a tax-efficient vehicle for international trade. This is in much the same way as non-UK resident companies were used prior to changes in the law for company residence tests in 1988.

Taxation

UK LLPs are tax transparent. In other words, the members of the UK LLP are taxed as if they were partners in a partnership.

Income and capital gains are therefore treated as the income and gains of the members, as set out in the Members' Agreement. If the members are not resident in the UK and the income and gains are not from a UK source or trade, then they will have no UK tax liability.

There are some anti-avoidance provisions to ensure that a LLP is not used to mitigate UK tax that might otherwise be payable. In particular, whilst they can be suitable for international trade, they should not be used for investments or property holding as specific anti-avoidance legislation is being introduced to counter their use in these circumstances.

Main Characteristics of a LLP

• Corporate body with limited liability
• Does not require an Objects Clause and therefore can undertake a wide variety of activities
• Registered at Companies House in England and Wales and has a UK registered office
• No requirement to file Members Agreement (Partnership Agreement)
• Must have a minimum of two members (neither has to be resident in the UK)
• There is no share capital requirement and no minimum capital contribution is required
• Decision making is flexible and is governed by the Members' Agreement
• There are no directors or secretary. The LLP is controlled by its members. Two of the members must be designated members who will have specific responsibility for statutory compliance of the LLP
• Any member may bind the LLP, although this may be restricted by the Members' Agreement
• A company seal is optional
• An Annual Return and accounts must be filed at Companies House. Where the profit figure exceeds £200,000 the amount attributable to the member with the largest profit share must be disclosed
• An audit is only required if more than two of the following are exceeded: - more than 50 employees - turnover greater than £1 million - gross assets of more than £1.4 million
• Must be a commercial venture operating for profit.

A Structure for Non-UK Trade by Non-UK Resident Members



In the above example, we have a Guernsey company and a UK company which is administered from the Channel Islands, both of which are members of a UK LLP. The UK LLP will have a UK address and will file accounts and annual returns at Companies House.

It will trade outside of the UK, as well as receive commissions and consultancy fees. In our example, the Guernsey company would receive 95% of the profit and as it is not UK tax resident, there will be no UK tax liability in respect of this income.

The UK company, on the other hand, will be entitled to 5% of the profits, on which it will pay corporation tax at a rate of 28% after deduction of the company's expenses.

Although there is no requirement for LLP members to be resident in the United Kingdom, a United Kingdom company with directors outside of the United Kingdom has been included. This is to provide some tax base since, although the company's affairs would be entirely organised outside of the United Kingdom, the profits of the United Kingdom company, being the 5% of income, less expenditure for the maintenance of the company, would be subject to corporation tax.

The accounting for the LLP would be dealt with by way of an administration agreement with an accounting organisation in the United Kingdom to enable a United Kingdom VAT number to be established for the LLP.

Conclusion

A UK LLP can be used as a respectable vehicle for international trade whilst enjoying a nil or low rate of tax.

For more information on how to use LLPs or to find out how Dixcart can assist, please contact us.