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Limited company memeber in LLP; Profit Split

Book or Tax Profit to be distributed from LLP to member Limited company

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I have a Limited Company as a member in an LLP. When transfering/distributing the profits from LLP to its memebers, in particular a Limited Company memeber, do we distribute book profits or tax profits?

If I distribute book profit in the LLP accounts and account for the book profits in the Limited Company accounts (as income) the tax due calculated in the limited company will be wrongs as if there is a depreciation add back which will result in tax evasion and if there is capital allowance charge then there will be over payment for tax.

If however, we account for tax profits in the LLP accounts and account for tax profits in the Limited Company accounts (as income) the profit distributions will not match with the actual profits in the LLP.

The best way that I can think about resolving this without doing the taxes wrong is to distribute the tax profits in the LLP accounts and account for the tax profits in the Limited COmpany but keep a reserve, like a deferred tax reserve, in the LLP to account for the difference in book profits and tax profits. Over many years, this reserve would rise and fall for the adjustments in the Capital Allowance and Depreciation. However, none of my collegues I could talk to could give a me clear picture if this is the right thing to do.

Please can someone suggest what can be done here. If possible, could you please also share some references to resources to confirm the correct action to take. I just want to be sure this is the right way to do this and pass this new knowledge to my colleagues too.

Many thanks in advance

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By johngroganjga
12th Dec 2019 13:49

You are over-thinking. What you are calling book profits are what I would call the actual profits. You can only distribute the actual profits. Any adjustments for tax purposes are in the corporate member’s CT computation.

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Replying to johngroganjga:
RLI
By lionofludesch
12th Dec 2019 14:13

Agree with John.

You can't distribute profits as adjusted for tax.

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