Share this content
9

Members invoicing their LLP, is it acceptable?

Didn't find your answer?

Hello All,

I would be very greatful for some advice on the following.

My newly formed LLP is about to start the construction and operation of a small renewable energy generating turbine. We have 4 members (two corprate and two individuals already self-employed in the renewable sector) and together we provide all the services and equipment required to construct and operate the type of renewable generator in question.

"Properties" used solely for renewable generation are exempt from business rates if more than 15% of profits are donated to charity. As we must give 5% of gross revenue to charity (a lease requirement), we would like to keep our profits low and gain exemption for a few years.

To fund the project we intend to each loan the LLP a certain amount of capital (the LLP has no member capital) which will be paid back in fixed installments over x number of years.

We will also be carrying out all the construction, consultancy and manufacturing of the projects ourselves and would like to invoice the LLP for this work at market rates. The idea being that the LLP will not have the capital reserves to pay these invoices and will have to pay them off over a period of years, thus keeping profits down. My question is, is there anything wrong with this invoicing? The invoices would of course be reasonable and fair amounts with no interest charged.

The LLP will receive all the revenue generated through the project from electricity sales.

Any advice would be greatly appreciated and if you would like anything clarifying please let me know. I will be discussing the final arrangements with an accountant, however would like to go into the meeting with as much information as possible.

Many thanks,
Rob

Replies (9)

Please login or register to join the discussion.

avatar
By Matrix
18th May 2019 14:24

I would discuss the initial arrangements with an accountant, not just the final arrangements.

Who advised you to set up an LLP?

This sounds very specialised so no one can advise without all the facts and without doing research.

In response to your question, yes there are issues with an individual or corporate partner invoicing a partnership for their services.

Thanks (1)
Replying to Matrix:
avatar
By RBrakes
18th May 2019 15:21

We wish to enact a complex profit share arrangement which would change over time. We also need to be able to adjust each members profit share based upon their final contributions to the project and it seems to us that an LLP is more suited to this.

I'm aware that there are issues in certain circumstances but it seems to me that this example would not be one of those. This is because each member is active in their particular field of consultancy/manufactuing with lots of other clients and therefore the LLP would just be another client.

Assuming this were acceptable, would such invoices be considered liabilities?

Thanks (0)
Replying to RBrakes:
Hallerud at Easter
By DJKL
18th May 2019 17:58

Given the varying profit shares and the potential for disputes a good solicitor drafting a partnership agreement fit for purpose would be helpful.

Would also mention that the costs invoiced to the LLP will likely be costs that go to the balance sheet rather than expenses of the LLP and therefore reported accounting profits of the LLP will likely depend on depreciation of the asset built. (Tax position will likely differ)

You may also need to consider CIS issues with any payments re these issues.

Accountant and solicitor appointed at outset sound essential.

Thanks (3)
Replying to RBrakes:
avatar
By Matrix
18th May 2019 18:13

Great, sounds like you didn’t need to pose the question then. Make sure your adviser puts all that in writing so you are covered.

Thanks (0)
avatar
By Tax Dragon
19th May 2019 08:50

In addition to the excellent points that Matrix and DJKL make, I would simply observe that YOU told US the rule ("Properties" used solely for renewable generation are exempt from business rates if more than 15% of profits are donated to charity). I don't know the underlying law, but I have read enough law to know that it doesn't put it the way you have.

It's also not unlikely that relevant terms are defined - so... what is their meaning in context?

Finally, if there is uncertainty of interpretation, the courts may seek to establish the purpose of the law. It would seem that you want the benefit of the relief (exemption from business rates) without meeting the condition (15% to charity). That is likely contrary to purpose and on that basis you ought not qualify.

Please accept this reply as generic - as I say, I don't know the particular bit of law that you have abridged.

Thanks (1)
Replying to Tax Dragon:
avatar
By RBrakes
19th May 2019 10:16

Thanks for your response.

Indeed, my wording was not correct - I was trying to keep the post concise while conveying as much information as I could. The scheme I am refering to is outlined here: https://www.mygov.scot/business-rates-relief/renewable-energy-generation... and you can find application forms on Council websites.

From speaking to other generators, seems quite common for small projects to be granted this relief on a recurring basis with a charitable donation of say 5-8% of gross. Discussion with those involved has led me to believe that this was due to the large debts the companies incurred when building the projects, the repayments on which tip them over the <15% profit donation threshold. It seems that we may be in a worse position to make use of this relief than other developers who would be procuring our services as part of their build process.

Thanks (0)
Replying to RBrakes:
Hallerud at Easter
By DJKL
19th May 2019 13:44

I suspect it is more interest on the debts depressing profits that is being mentioned, the debts themselves do not impact profits being items featuring on the balance sheet not the profit and loss account.

You need an accountant to crunch some numbers here, there appears to be a blind assumption here that relieving the rates is worth foregoing 15% of profits, has anyone tested this re your particular operating plan/ set up or are you merely taking generic guidance from the industry?

(We did a small wind farm planning as an augment to a housing scheme some years ago- we did not get the wind planing and withdrew the application, but I do recall that payback periods were fairly lengthy)

Thanks (0)
By Duggimon
20th May 2019 09:53

Debt repayments are not factored into profits. Nor is capital spend on equipment or construction.

Your plan hinges on the members charging the LLP enough in interest that the 5% of gross becomes 15% or more of the profit. As you haven't given us any figures we can't really comment on whether that's sensible or not but lending the LLP enough capital so that the interest on it at market rates is enough to reduce profits to the level where the rates are relieved may not even be feasible.

You would also have to be lending the money for a purpose, so the value of the work the members carry out would need to match the loaned amounts, otherwise the whole thing looks like a fake construction to get around NDR.

Are you sure that avoiding the rates is worth the considerable hoops that need to be jumped through, and that the specific needs of the business are such that the plan even works without being considered just an elaborate setup to avoid rates payments?

Some figures as an illustration might help us advise one way or another but regardless, you do need proper professional legal and accounting advice beyond what can be gleaned from these forums.

Thanks (0)
avatar
By Justin Bryant
21st May 2019 10:52

You need to be a bit careful re cases like those mentioned in the link below re "dual capacity companies":

https://www.accountingweb.co.uk/community/blogs/leshoward/inter-company-...

Thanks (0)
Share this content