Is it possible for CIS subcontractors to adopt LLP model (i.e form a LLP to invoice the agency and receive LLP's profits as non-CIS self employed)?
Thanks in advance
Replies (9)
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What are you trying to achieve?
The trading status will not affect CIS status. The only way to prevent CIS deductions is to obtain gross payment status.
Ltd Co or partnership - yes better for paying contractor
From an engager's viewpoint it is better that the subcontractor is NOT a sole trader, ie. it is better that the subcontractor is a Ltd Co, patnership or LLP.
By having this alternative status for the subcontractor the PAYE risk passes to the subcontractor who (by not being a sole trader) has to consider IR35 issues.
LLP is self-employed
For tax purposes, an LLP partner is exactly the same as a partner in an ordinary partnership. They are self-employed. They will be as subject to CIS as any other self-employed person.
If the individuals did become employees (more likely of a limited company, though some could be employees of an LLP is not all were partners) then the head subcontractor would still be subject to CIS.
It should be
As I said before, an LLP is a partnership for tax purposes. I am not entirely sure how this can happen since the LLP is not a CIS registered organisation. It should follow all the normal CIS rules for partnerships.
I really think you need to do a fair bit of studying on LLPs if you propose continuing to act for one.
When working with self employed individuals, the CIS contractor or intermediary bears the risk of being audited by HMRC in respect to the employment intermediaries legislation. They need to show that the self employed individuals are not supervised, directed nor controlled by the end client.
If the subcontractors work as limited companies or limited liability partnerships, then they need to comply with the IR35 legislation (with different tests) and therefore they bear the risk of a HMRC audit.
Some say that both IR35 and agency rules apply to these Personal Services Companies if there is also an agency involved between the PSC and the end client.
@Ellyxris
From which 'side' are you acting?
Are you acting on behalf of a contractor, and want to avoid making CIS deduction from subbies and/or prevent putting them on payroll, or are you asking on behalf of the subcontractors? It would appear you are acting on behalf of a contractor as otherwise the self-employment wouldn't be a problem.
What benefits one may one not benefit the other, and you have mentioned previously that you are not an accountancy practice, but want to offer accounting services to clients, so I am still confused what you are trying to achieve.