UK Limited Liability Partnerships do not normally pay corporation tax. Tax law treats an LLP that carries on a trade, profession, or business with a view to profit as transparent, so the profits pass through to the members, who pay tax on their own share. The LLP itself pays corporation tax only in narrow circumstances, chiefly when it stops trading for profit or enters winding up.
How the Transparency Rule Works
Section 863 of the Income Tax (Trading and Other Income) Act 2005 is the anchor. When an LLP carries on a trade, profession, or business with a view to profit, all of its activities are treated as carried on by the members in partnership rather than by the LLP.1Legislation.gov.uk. Income Tax (Trading and Other Income) Act 2005 – Limited Liability Partnerships Property held by the LLP is treated as partnership property held by the members, and the LLP is not “a company” for income tax purposes.
HMRC looks through the LLP as though it isn’t there. The partnership works out its total taxable profit for the year, then each member picks up their share according to the profit-sharing agreement.2Legislation.gov.uk. Income Tax (Trading and Other Income) Act 2005 Part 9 – Allocation of Firm’s Profits or Losses Between Partners The same look-through applies to capital gains under the Taxation of Chargeable Gains Act 1992: assets held by a trading LLP are treated as held by the members, and any gain is assessed on them individually.3Legislation.gov.uk. Taxation of Chargeable Gains Act 1992 Section 59A – Partnerships Involving Limited Liability Partnerships
When an LLP Does Pay Corporation Tax
An LLP is a body corporate under the Limited Liability Partnerships Act 2000. If it stops meeting the Section 863 conditions, HMRC taxes it as a company.4GOV.UK. PM131450 – LLP: Taxation Two situations trigger this.
The first is that the LLP is no longer trading with a view to profit. If it ceases to carry on a business aimed at making money, it loses transparency and becomes chargeable to corporation tax on its own income and gains. A temporary pause won’t do it, but a permanent shift away from profit-seeking activity will.
The second is formal winding up. An LLP in liquidation or being wound up by court order is generally treated as a body corporate for tax, unless the winding-up period is not unreasonably prolonged and is not connected with tax avoidance.
The Inverclyde decision confirmed the boundary: an LLP carrying on a trade with a view to profit is transparent, but once that condition fails the LLP itself is chargeable to corporation tax as a body corporate.5GOV.UK. HMRC v Inverclyde Property Renovation LLP and Clackmannanshire Regeneration LLP For most active professional and commercial LLPs this never arises. Investment LLPs and dormant vehicles need to watch it carefully.
How Individual Members Are Taxed
Individual members of a trading LLP are treated as self-employed.6HM Revenue & Customs. Partnerships: A Review of Two Aspects of the Tax Rules – Salaried Members Rules Each member reports their profit share on a personal Self Assessment return and pays income tax at the standard 2025-26 rates:7GOV.UK. Income Tax Rates and Personal Allowances
- Personal allowance: £12,570 at 0%
- Basic rate: £12,571 to £50,270 at 20%
- Higher rate: £50,271 to £125,140 at 40%
- Additional rate: above £125,140 at 45%
The personal allowance tapers away once adjusted net income exceeds £100,000, dropping by £1 for every £2 above that threshold, and disappears entirely at £125,140.
One point that catches members out: tax is due on your allocated share of profits, not on what you actually draw. If the agreement allocates you £80,000 of profit but you leave £50,000 in the firm, you still owe income tax on £80,000. The LLP withholds nothing, so covering the bill is your responsibility.
The Salaried Member Rules
Not every member is automatically self-employed. Since 2014, the salaried member rules can reclassify a member as an employee for income tax and National Insurance. All three of these conditions must be met:8GOV.UK. PM251010 – Salaried Member Rules Overview
- Condition A: the member’s reward for services is substantially fixed, without meaningful reference to the LLP’s overall profitability.
- Condition B: the member does not have significant influence over the affairs of the LLP.
- Condition C: the member’s capital contribution is less than 25% of their expected disguised salary for the year.
When all three apply, the LLP must run PAYE, deduct income tax and employee National Insurance from the member’s payments, and pay employer National Insurance on top. Test each member at least once a year. Getting this wrong produces both a tax shortfall and possible penalties.
National Insurance for Members
Self-employed LLP members pay Class 4 National Insurance on their profit share. The 2025-26 rates are 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270.9GOV.UK. Rates and Allowances: National Insurance Contributions
Class 2 contributions used to be a separate flat-rate payment protecting your National Insurance record. From April 2024, if your profits reach £6,845 or more, Class 2 is treated as paid automatically.10GOV.UK. Self-Employed National Insurance Rates Voluntary Class 2 remains available for members with profits below that threshold who want to preserve state pension entitlement.
Unlike employment, there is no employer share. LLP members carry the whole cost, which is worth factoring into any comparison with a director’s salary from a limited company.
Corporate Members and Corporation Tax
A limited company can be an LLP member. When it is, the LLP still doesn’t pay corporation tax on the whole pot. The company member picks up its allocated share and includes that income in its own corporation tax return.1Legislation.gov.uk. Income Tax (Trading and Other Income) Act 2005 – Limited Liability Partnerships For the financial year beginning 1 April 2025, the rates are 19% for companies with taxable profits under £50,000, 25% for profits over £250,000, and marginal relief between those thresholds, which gradually increases the effective rate from 19% toward 25%.11GOV.UK. Corporation Tax Rates and Allowances Those thresholds are divided by the number of associated companies, which can push a smaller company into the main rate sooner than expected.12GOV.UK. Marginal Relief for Corporation Tax The tax arises because of the member’s legal identity, not because the LLP itself is chargeable.
Filing and Payment Dates
The LLP itself must file a Partnership Tax Return, Form SA800, each year.13GOV.UK. Self Assessment: Partnership Tax Return (SA800) One member is nominated to complete and submit it. The return shows the partnership’s total income and how it was allocated. No tax payment accompanies it, because the LLP itself owes nothing.
Paper returns are due by 31 October; online returns by 31 January following the end of the tax year.14HM Revenue and Customs. Partnership Tax Return 2025 Late filing hits every member: each faces an initial £100 penalty, then daily penalties of £10 per day after three months (up to £900), then further charges of 5% of the tax due or £300 (whichever is greater) after six and twelve months.15GOV.UK. Self Assessment Tax Returns: Penalties For a ten-member LLP, a single missed deadline is £1,000 in penalties across the firm before anyone opens the post.
Because the LLP withholds nothing, individual members manage their own payments through Self Assessment on two dates a year:16GOV.UK. Pay Your Self Assessment Tax Bill
- 31 January: the balancing payment for the previous tax year plus the first payment on account toward the current year.
- 31 July: the second payment on account toward the current year.
Each payment on account is normally 50% of the prior year’s total income tax and Class 4 National Insurance bill.17Legislation.gov.uk. Taxes Management Act 1970 Section 59A – Payments on Account of Income Tax In a member’s first year of high profits the January payment can be brutal: the full prior-year balance and a 50% advance on the current year fall together. Setting cash aside from the start prevents a January crisis.