IR35 and Limited Liability Partnerships

When we talk about the IR35 legislation, we talk about using limited companies and rarely mention the use of limited liability partnerships. There is good reason for this, mainly which the legislation seldom applies to partnerships.

A Limited Liability Partnership (LLP) is very similar to a limited company except that it requires two members. Unlike a limited company where the director is able to pay themselves a small or no salary and draw the rest as dividends, a partnership’s members are taxed as employees of their business. IR35 is therefore irrelevant in most cases as full income tax and NICs will already have been made.

But there are occasions where the IR35 legislation may apply to partnerships:

• If the worker owns 60% or more of the profits (either alone or with relatives)
• The majority of the partnership’s profits stem from a single client or their associates
• The income of a partner is based on the income generated by that partner under the partnership’s arrangements for sharing profits

The partnership would need to satisfy only one of the above, plus the usual conditions of deciding whether the legislation applies would also need to be met for the legislation to apply.

When it comes to partnerships, the legislation is intended to apply to those, which “have been set up to control the form in which income from relevant engagements is passed to a worker.” Those operating as genuine businesses that might occasionally have a partner working for a client under circumstances where the legislation might otherwise apply are unlikely to find themselves within the legislation.

If you require further advice on whether IR35 applies to your partnership, contact us today on 0116 269 0999.