CH 20 - Limited Liability Partners

Question 1

How LLP is taxed when
does not carry on a business with a view to making a profit?

Answer 1

The LLP will be chargable to CT on its income and gains
if
not carying buisness with a view to making a profit
(also, on wound up or liquidation)

otherwise, profits are subject to IT on the individual members

Question 2

Define loss relief restriction under LLP’s

Answer 2

s.64, s.71 and s.72 (sideways loss relief)
s restricted to each member’s contributions

contributions under LLP means capital introduced + further amounts payable if LLP is wound up

• & restriction applies to ‘cumulative’ sideway loss relif / capital gains relief, not per tax year.

Question 3

Loss relief restrictions for
non-active partners under LLPs

Answer 3

The maximum sideways loss relief/capital gains relief claims which can be made by a non-active member of an LLP in any tax year is lower of;
* £25,000, or
* unrelieved contributions

contributions means amount actually been contributed (excl. pledged amount on winding up which is the difference to that used for active LLP members)

Question 4

How to assess possible
DISQUISED EMPLOYMENT
within LLPs?

Answer 4

Disquised Employement applies when all 3 conditions are met for a member to be treated for tax and NI as being employed by LLP; being

• Condition A - Disquised Salary
  - its reasonable to expect that at least 80% of amount paid by LLP to the individual is disquised salary’. (test apply)
• Condition B - No significant influence
  (no voting rights)
• Condition C - No significant investment
  (< than 25% of total amounts of disquised salary)

Disquised Salary is any amount which;
* is fixed; or
* is variable but without reference to the overal profit/losses of the LLP; or
* is not, in practice, affected by the overall amount of the profits or losses of the LLP.

ITTOIA 2005, s.863B, C & D

Question 5

What does it mean
‘Unrelieved capital contribution’
in LLPs

Answer 5

‘Unrelieved capital contribution’ = capital contribution less sideways loss relief already taken.

Question 6

what is ‘relief cap’ & when it applies

Answer 6

The ‘relief cap’ always applies.

Therefore, the maximum amount of
losses which can be set off against non-trading income in any tax year
for any individual is higher of;
* 25% × taxpayers adjusted total income for the year or
* £50,000,

This applies to EVERYONE

(ITA 2007, s.24A)