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Partnership to be transferred to LLP

We have a business (partnership)with year end of 31st May.  Looking to limit liability and so either LLP/Ltd Co on 30th October.  One disadvantge of Ltd company is the cessation of trade would accelerate the tax payable even after allowing for overlap relief.

If the LLP is formed, the partners would continue to be taxed under self assement and I assume that the partnership will continue for this purpose. So on the partnership tax return for 2014, there would be the results from 1st June 2012- 30th October plus the remainder of LLP to 31st May 13.  Is this correct?

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06th Jul 2012 15:13

Tax

Only looking at the first paragraph of the above, but how would an LLP limit the tax liabilities going forward? The partners would all still be taxed in exactly the same way i.e. 20% tax 9% NI (assuming BR tax payers etc etc) whereas the company would suffer 20% tax (assuming small co rate etc etc) therefore saving 9%.

Unless you're looking into the cessation of trade rules to reclaim overlaps, but cessation to incorporate would do the same thing.

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By djn24
06th Jul 2012 15:51

Limit personal liability to claims not tax.

The major factor is the protection of limited liability not to limit tax liability, sorry should have been a little clearer on that one.

Incorporating as a ltd company I agree would be cessation of trade rules.  I spoke to abbey tax consultants about this and they seem to think that tfr to an llp where all of trade has been transferred is not a cessation of trade, as per tax bulletin 50. I've looked at this bulletin but can't seem to find it mentioned?

 

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Definite continuation as long as

The condition for the transfer of trade is that all partners and their interests must be identical before and after the transformation into an LLP. The slightest change will trigger cessation so the partners, profit shares etc must all match.

The accounting date remains the same unless you wish to take advantage of the change of accounting date rules.

A discussion with HMRC will allow the LLP to retain the UTR so that the returns can continue as usual.

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By djn24
09th Jul 2012 08:27

Further info?

Marion Hayes wrote:

The condition for the transfer of trade is that all partners and their interests must be identical before and after the transformation into an LLP. The slightest change will trigger cessation so the partners, profit shares etc must all match.

The accounting date remains the same unless you wish to take advantage of the change of accounting date rules.

A discussion with HMRC will allow the LLP to retain the UTR so that the returns can continue as usual.

 

Do you have a link with more information on the above please?

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will do

Am just off to a meeting but will reply this afternoon if that is okay

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By djn24
09th Jul 2012 08:50

Thanks

Marion Hayes wrote:

Am just off to a meeting but will reply this afternoon if that is okay

That's great.Thank you.

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http://www.hmrc.gov.uk/manuals/sammanual/sam100240.htm   

Extracts

Note: Where form LLP2 indicates that an existing ‘Ordinary partnership’ has converted to a Limited Liability Partnership, the partnership type on the existing SA record should be amended using function AMEND TAXPAYER SIGNALS. 

-  -  Where an existing partnership converts to a Limited Liability Partnership only one return is required for the whole year. 

BIM72120

Where an old partnership incorporates as a LLP during an accounting period then, if the partners so wish, they need only make a single partnership return for the one tax year. They may do this even if the partnership changes its accounting date. The old partnership and the new LLP also need only make a single PAYE return for the tax year in which the old partnership incorporates as the new LLP.

BIM72125

Capital allowances

Where a LLP succeeds to a business previously carried on by a sole trader, professional, general or limited partnership this will not of itself give rise to a balancing event for the purposes of the capital allowances provisions.

***

Cessation/commencement

Where a LLP succeeds to a business previously carried on by an old partnership this will not of itself involve the cessation of the old partnership’s trade or profession or the commencement of a new trade or profession by the LLP.

****

if the LLP does carry on ‘the business’ previously carried on by the old partnership then, as it will have succeeded to the old partnership’s business, the cessation provisions will not be applied to the old partnership and any overlap relief will be carried forward. Equally you should not apply the commencement provisions to the members of the LLP.

 

BIM72140

If, on conversion, a LLP succeeds to the business previously carried by an old partnership then a partner’s personal trade or profession will be regarded as continuing.

In these circumstances and provided that the conditions for the relief are otherwise met:

a member of an old partnership may carry forward the balance of any loss relief to which they may be entitled against their share of future profits made by the LLP, anda member of a LLP may carry back and set off any terminal loss relief to which they may be entitled against their share of profit which accrued to them whilst a member of the old partnership.

Further they will be entitled to a deduction for the overlap relief which accrued to them whilst a member of the old partnership at the time they finally retire from the LLP (or perhaps earlier if the LLP changes its accounting date). 

Hope these are not too disjointed

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By djn24
10th Jul 2012 10:39

Thank you.

That's very helpful and is what I assumed would happen.  Thank you.

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