I have a client who has a company inwhich he and his wife are main shareholders with alphabet shares for his adult children (a questions in itself). He is planning on setting up an LLP with a collegue and wants his company to charge the LLP for his time. Two reasons: one to reduce his personal income tax liability and secondly to get the profit into the company so it can be distributed as dividends to himself, his wife and his children. This feels to me like it would be tax manipulation, so my questions are:
What would HMRC's likely view be?
If he were to have the new business set up as a Ltd Co, would this give a different view on this treatment?
If the company was the partner in the LLP rather than the individual would there be a different impact?
Would there be IR35 implications of this?
Is there anything else I should be thinking about?
Replies (13)
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Is he sure the tax he would pay if he took the income as his LLP profit share is less than the sum of the 19% corporation tax the company will pay on it and the income tax he will pay on taking the 81% that is left out of the company as dividends?
What's the arrangement with his colleague that means that charging for time (assuming that's even lawful... IANAL) doesn't skew the profit shares in his favour?
ITTOIA 2005, s 850D?
Shouldn't the first question not be, why don't the individuals form the LLP directly?
It seems to me that either IR35 bites or the mixed partnership rules do, which takes you to only one logical conclusion. KISS.
Also, OP, why does the entity need to be an LLP? Will the individuals share profits unequally?
Yes, but s 850D applies to tax the profits on the individuals if "it is reasonable to suppose" that the individuals would be members but fir s 850C (which taxes the profits on the individuals if they are members).
Why does the entity that will be an LLP need to be an LLP? Can't it be a company and each party takes up their share of the profits into their company each period?