Taxation
Although in general law a LLP is regarded as a 'body corporate', for tax purposes a LLP is normally treated as a 'partnership'.
The Tax Acts state that where an LLP carries on a trade profession or other business with a view of profit, then :
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The LLP will therefore normally be regarded as transparent for tax purposes and each member will be assessed to tax on their share of the LLP's income or
gains as if they were members of a general partnership governed by the Partnership Act 1890.
Furthermore there are provisions which provide that it is the persons who are registered as members of the LLP who carry on the business. Thus if a LLP
carries on a trade then each registered partner is taxable on the income they derive from the LLP under the rules of Case I Schedule D notwithstanding the
fact that the registered member may have been a salaried partner in a predecessor general partnership.
For those members chargeable to income tax, their share of the partnership's profits to be charged to tax is calculated in accordance with the relevant
rules and for those members chargeable to corporation tax in accordance with those rules as set out.
There are two exceptions to the normal rule. These are where:
All the activities of the LLP are treated as being carried on in partnership by its members (and not by the LLP as such),
-Anything done by, to or in relation to the LLP for the purposes of, or in connection with, any of its activities is treated as done by, to or in relation to the members as partners, and
-The property of the LLP is treated as held by the members of the LLP.'
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But where:
The LLP does not carry on a business with a view to profit. In these circumstances the rules do not apply (some members clubs or societies fall within this narrow category), and
-The LLP is in liquidation or is being wound up by the order of the Court.
-In these circumstances the LLP will be regarded as a 'body corporate' for the purposes of the Tax Acts and will itself be chargeable to corporation tax on its taxable profits or gains.
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Then the LLP will continue to be regarded as a partnership, that is as transparent, for the purposes of the Tax Acts.
The LLP only temporarily ceases to carry on a business with a view of profit (ICTA88/S118ZA (3)(a)), or
-The LLP is being wound up, and
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The period of the winding up is not unreasonably prolonged, and
-The winding up is not connected in whole or in part with the avoidance of tax