How a Limited Liability Partnership (LLP) Is Taxed in 2026/27

A limited liability partnership sits in an unusual place in UK law: it is a body corporate with its own legal personality, registered at Companies House like a company, but for tax purposes it is treated as a partnership. That single fact drives almost everything else on this page. This guide covers how the transparency rule works, exactly what each member pays in 2026/27, the salaried members rules that can turn a member into an employee for tax, what has to be filed and when, and the situations where an LLP is the wrong structure. If you are choosing between working alone as a sole trader and incorporating, start with our sole trader vs limited company comparison instead. This page is about the multi-owner case.

2026/27 LLP key figures

1. What an LLP actually is

Section 1 of the Limited Liability Partnerships Act 2000 defines an LLP as "a body corporate (with legal personality separate from that of its members) which is formed by being incorporated under this Act". The members "have such liability to contribute to its assets in the event of its being wound up as is provided for by virtue of this Act" - which is the limited liability part, and the substantive difference from an ordinary partnership, where s.9 of the Partnership Act 1890 makes every partner "liable jointly with the other partners, and in Scotland severally also, for all debts and obligations of the firm incurred while he is a partner".

Section 2 of the 2000 Act requires "two or more persons associated for carrying on a lawful business with a view to profit" to subscribe to an incorporation document. A member can be an individual or a company (a "corporate member").

The practical setup requirements, per Companies House:

• At least 2 members, and at least 2 designated members at all times. Designated members carry the filing duties and can be prosecuted personally if the LLP's annual documents are late.
• A name ending in "Limited Liability Partnership" or "LLP" (or the Welsh equivalents for an LLP registered in Wales).
• A registered office that is a physical UK address in the same country the LLP is registered in. It appears on the public register.
• An LLP agreement setting out how profits are shared, who agrees decisions, and how members join or leave. There is no statutory model, so without one you fall back on default rules that rarely match what the members intended.
• Registration at Companies House: £100 using commercial software, £124 on paper, or £156 for the same day service if you apply before 3pm. Companies House lists no web-filing option for LLP incorporation, so it is commercial software, a formation agent, or paper.

Note the asymmetry that runs through this whole guide: an LLP is registered, regulated and disclosed like a company, and taxed like a partnership.

2. Tax transparency: the defining point

Where an LLP carries on a trade, profession or business with a view to profit, s.863 ITTOIA 2005 provides that "all the activities of the limited liability partnership are treated as carried on in partnership by its members (and not by the limited liability partnership as such)", that anything done by or to the LLP is treated as done by or to the members as partners, and that "the property of the limited liability partnership is treated as held by the members as partnership property". Section 1273 of the Corporation Tax Act 2009 does the equivalent job on the Corporation Tax side.

HMRC's Partnership Manual states the consequence at PM131450: "for tax purposes a LLP is normally treated as a partnership", and "each member is charged to Income Tax or Corporation Tax on their share of the LLP's income or gains as if they were members of a general partnership". So:

• The LLP pays no Corporation Tax on its trading profit and files no CT600.
• Individual members pay Income Tax on their profit share through Self Assessment.
• Corporate members pay Corporation Tax on their own share, inside their own company.
• There are no dividends. Profit is allocated, not distributed. Nothing in the LLP is taxed at the Corporation Tax small profits rate first.

PM131450 also flags a consequence people miss: because the LLP is transparent, "LLPs cannot claim (or surrender) group relief". If your structure depends on moving losses around a group, an LLP breaks that.

When transparency stops

PM131450 sets out the cases where the LLP is treated as an ordinary body corporate and can fall within the charge to Corporation Tax instead: where "the LLP does not carry on a business with a view to profit", and where "the LLP is in liquidation or is being wound up by the order of the Court". Transparency is preserved through a winding up that takes a reasonable time and is not being used for tax avoidance. This is why an LLP that stops trading and sits dormant is a materially different tax animal from the one that was trading.

The mixed membership anti-avoidance rule

If an LLP has both individual and corporate members, s.850C ITTOIA 2005 ("Excess profit allocation to non-individual partners") can reallocate profit back to an individual member where an excessive share has been routed to a company that the individual can benefit from. It was inserted by Finance Act 2014 alongside the salaried members rules and it is the reason "put a company in the LLP and pay 19% instead" is not the simple plan it sounds like. Take advice before building a structure around it.

3. What each member actually pays

An individual LLP member is taxed on their profit share the same way a sole trader is taxed on their profit. HMRC PM131550 is explicit on the National Insurance side: "The National Insurance Contribution (NIC) position of members of a LLP is the same as that of partners in an ordinary partnership", and members are liable to Class 2 and Class 4 NIC as appropriate.

• Income Tax on the profit share, stacked with the member's other income, after the £12,570 Personal Allowance. Scottish taxpayers use the Scottish rates and bands.
• Class 4 NI at 6% on the profit share between £12,570 and £50,270, then 2% above £50,270.
• Class 2 NI is not a bill any more. A member whose share of the profit is at or above the Small Profits Threshold of £7,105 is treated as having paid Class 2 and gets the State Pension qualifying year without paying anything. Only below that threshold is there a decision to make, and there the member can pay voluntarily at £3.65 a week (£189.80 a year) to protect the qualifying year.
• No employee NI, no employer NI on a genuine profit allocation. PM275500: "No secondary class 1 NICs will be due on profits allocated to partners, as they are not employees and so do not receive employment income."
• Payments on account apply in the normal Self Assessment way, on 31 January and 31 July.

Worked example: a two-member trading LLP

An LLP makes £120,000 of taxable profit for 2026/27, shared 60/40 under the LLP agreement. Neither member has other income. Figures below are computed by the same engine that powers our self-employed calculator, using the canonical 2026/27 ruleset.

Notice what is absent. No Corporation Tax line. No employer National Insurance. No dividend tax. The whole £120,000 is taxed once, at each member's personal rates, in the year it arises. That is simpler than a company, and at higher profits it is usually more expensive, because there is no lower corporate rate on the slice you do not need to spend.

4. You are taxed on profit you never drew

This is the single most common shock for new LLP members, and it belongs near the top of any honest LLP guide. Your tax follows the profit allocated to you, not the cash you took out.

HMRC PM138000 puts the obligation this way: "Each partner is required to include on their own tax return the share of partnership income, loss, tax, credit or charge allocated to them in the partnership statement for the relevant period." PM146100 adds that "The share of profits that a partner enters in their own return must correspond with the profit allocated to them in the partnership return". Drawings do not appear in that sentence anywhere, because they are not the taxable amount. They are payments on account of an expected profit share.

Take Member A from the example above. Their allocated share is £72,000 and their Income Tax plus Class 4 NI comes to £18,929. Suppose the LLP needs working capital and Member A only draws £40,000 during the year. The tax bill does not shrink. It is still £18,929, payable from £40,000 of cash actually received, leaving £21,071 for everything else - before payments on account for the following year are added on 31 January.

A limited company does not work this way. Retained profit sits in the company, taxed at the Corporation Tax rate, and the shareholder chooses when to extract it and trigger personal tax. In an LLP there is no such deferral. Any LLP that intends to reinvest heavily needs an explicit tax reserve policy in the LLP agreement, or its members will end up funding the firm's growth out of personal savings.

5. Salaried members rules

Because members escape employer National Insurance, there is an obvious incentive to promote employees to "member" without changing anything real. Finance Act 2014 inserted ss.863A to 863G into ITTOIA 2005 to stop that, with effect from 6 April 2014. HMRC PM251000 describes the intent: "The Salaried Member provisions are intended to apply to those members of LLPs who are more like employees than partners in a traditional partnership."

Section 863A(1) applies "at any time when conditions A to C in sections 863B to 863D are met in the case of an individual". All three must be met. HMRC PM254000: "Only if an individual satisfies all 3 conditions are they a salaried member."

Fail any one condition and the member remains self-employed for tax. Meet all three and s.863A(2) provides that "M is to be treated as being employed by the limited liability partnership under a contract of service instead of being a member of the partnership", with their rights and duties as a member treated as rights and duties under that contract.

What that means in practice

• PAYE applies. The LLP deducts Income Tax and employee Class 1 NI at source, and pays employer Class 1 NI at 15% above the £5,000 Secondary Threshold. That employer NI is a real new cost the LLP did not have before.
• They come off the partnership return. PM260100: "As the Salaried Member is not treated as a partner for tax purposes, they are not included on the partnership return for a period when they are a Salaried Member."
• Getting it wrong is a PAYE failure. PM260300: "If HMRC reviews the position and it is found that the LLP has failed to treat a member as a Salaried Member, then this would be a PAYE failure", and "the LLP, as the employer, would be liable to pay over the amount that should have been deducted from the amount that was actually paid to the employee."
• Employment-style benefits do not decide it. PM254000 notes that sick pay, maternity leave, holiday entitlement and termination rights "are not taken into account in the salaried member test". The statutory conditions are the whole test.
• The rules apply to UK LLPs only. PM251000 confirms they do not apply to general partnerships, to limited partnerships under the Partnership Act 1890 and Limited Partnerships Act 1907, or to non-UK entities equivalent to a UK LLP.

The practical drafting response most firms take is to make junior members fail Condition A (give them a genuinely profit-linked share) or Condition C (require a real capital contribution of at least 25% of expected reward). Both have to be real. HMRC's anti-avoidance guidance at PM259000 covers arrangements designed only to sidestep the conditions.

6. What an LLP must file, and when

An LLP files in two directions at once: to HMRC as a partnership, and to Companies House as a body corporate. That double duty is the real administrative cost of the structure.

To HMRC

• Register. Designated members must register the business for Self Assessment with HMRC, and every member must also register individually. A partner registers using form SA401 or the online service; the nominated partner registers the partnership itself on form SA400.
• Partnership Tax Return (SA800). One return for the LLP, reporting its income and the partnership statement allocating profit between members. It carries no tax charge of its own.
• Each member's own return. Every member files a personal Self Assessment return with the partnership pages (SA104), entering the profit share exactly as allocated in the partnership return.
• VAT. The LLP registers for VAT if sales are expected to exceed £90,000 a year.
• No Corporation Tax registration and no CT600, while the LLP is trading transparently.

To Companies House

• Annual accounts, prepared, signed and sent by the designated members. Due within 9 months of the accounting reference date. First accounts covering more than 12 months are due the longer of 21 months from incorporation or 3 months from the accounting reference date.
• A confirmation statement at least once every 12 months, filed within 14 days of the end of the review period. The fee is £50 online or by software, £110 on paper form LL CS01.
• Changes within 14 days when a member is appointed or leaves, or a member's details change (forms LL AP01, LL AP02, LL CH01, LL CH02, LL TM01).
• People with significant control information, kept current.

Deadlines and penalties at a glance

The per-partner penalty is worth dwelling on. HMRC's guidance is blunt: "All partners will be charged a penalty if a partnership tax return is late." A single missed SA800 in a six-member LLP is six penalties, not one, and the members who did nothing wrong get charged too.

Companies House is equally direct in its LLP guidance: "the designated members could be prosecuted because they're personally responsible for ensuring they send us the LLP's annual documents on time. Failing to do so is a criminal offence."

Yes, the accounts are public

Companies House states in its LLP accounts guidance that "All information contained in the accounts will appear on the public record." A sole trader and an ordinary partnership file nothing at Companies House at all, so this is a genuine loss of privacy that comes with the limited liability, not a side effect you can opt out of.

Smaller LLPs can reduce what is visible. For accounting periods beginning on or after 6 April 2025 a micro-entity must meet at least two of: annual turnover no more than £1 million, balance sheet total no more than £500,000, and no more than 10 employees on average. A small LLP must meet at least two of: turnover no more than £15 million, balance sheet total no more than £7.5 million, and no more than 50 employees. Both can claim audit exemption on the small LLP criteria.

Making Tax Digital

Partnerships, including LLPs, are not in Making Tax Digital for Income Tax yet. HMRC's guidance says only that "Partnerships will also need to use Making Tax Digital for Income Tax in the future. We'll set out the timeline for this at a later date." An individual member with separate sole trader or property income may still be caught in their own right on that income. See our MTD ITSA: who needs to comply guide.

7. Employees, PAYE and the Employment Allowance

Can an LLP have employees? Yes. The LLP is a body corporate with its own legal personality (s.1 LLPA 2000), so it employs staff in its own name, registers as an employer with HMRC, runs PAYE, and pays employer Class 1 National Insurance at 15% above the £5,000 Secondary Threshold. HMRC's own salaried members guidance refers to "the LLP, as the employer" (PM260300), which settles the point.

Members are not employees, though. PM275500: "No secondary class 1 NICs will be due on profits allocated to partners, as they are not employees and so do not receive employment income." The same page warns that HMRC looks hard at cases "where it is claimed that individuals who, in reality, enjoy no rights of being a partner are treated as partners, purely so that the employer Class 1 NIC liability can be avoided" - which is exactly what the salaried members rules in section 5 above police.

Can an LLP claim the Employment Allowance? Yes, if it has staff. HMRC's further employer guidance says: "You can claim Employment Allowance if your partnership employs anyone, and pays employer Class 1 NICs as a result." The allowance reduces the employer's annual secondary Class 1 NI bill by up to £10,500. The usual restrictions apply: you must do less than half your work in the public sector, you cannot count employees engaged under the off-payroll working rules, and only one entity in a connected group can claim - HMRC's NIM06590 confirms LLPs are treated as companies for the connected persons test.

The catch is arithmetic rather than legal. An LLP whose only participants are its members has no secondary Class 1 liability at all, so there is nothing for the allowance to reduce. The Employment Allowance only becomes worth something once the LLP actually employs people who are not members. Note the contrast with a one-director limited company, which is blocked from the allowance by a specific rule; the LLP is not blocked, it simply has no liability to set it against.

8. LLP vs the three alternatives

The tax-rate comparison between working for yourself and incorporating is covered in full, with worked take-home figures at five profit levels, in our sole trader vs limited company guide. This table deliberately does not repeat it. What follows is the structural comparison: who bears the liability, who is taxed, and what the world can see.

Read across the "LLP" column and the shape of the thing is clear: it takes the liability protection and the disclosure burden of a company, and the tax treatment of a partnership. Whether that trade is good depends entirely on whether you value the liability shield more than the profit-retention flexibility you give up.

9. When an LLP is the wrong choice

An LLP is a good fit for a professional firm with several working owners who share profit flexibly, want liability protection, and distribute most of what they earn. It is a poor fit in the following cases, and the tax transparency that makes it elegant is usually the reason.

• You want to reinvest profits. Members pay Income Tax and Class 4 NI on the full allocated share in the year it arises, drawn or not. There is no equivalent of leaving money in a company at the Corporation Tax rate. A capital-hungry business with two members on higher-rate tax funds its own growth out of post-personal-tax money.
• You want to smooth income across years. A company lets a shareholder declare dividends in a low-income year. An LLP member is taxed when the profit arises, full stop. There is no timing lever.
• You are a single owner. An LLP needs at least two members and at least two designated members. A single-member company does the same liability job with fewer people involved.
• You want outside equity investment. Investors expect shares. There are no shares in an LLP, and the venture and angel schemes built around share subscription do not fit the structure.
• You value privacy. Accounts on the public record, the registered office public, members named. A sole trader or ordinary partnership discloses none of that.
• Your junior members are really employees. If they fail all three salaried member tests they get PAYE and employer NI anyway, so you have taken on the LLP's disclosure and filing burden without the NI outcome you were expecting.
• You want a simple structure and profits are modest. Two sets of filings (HMRC and Companies House), a partnership return whose lateness penalises every member individually, and accounts that must be prepared to Companies Act standards. An ordinary partnership avoids all of that, at the price of personal liability.
• You need group relief. PM131450 is explicit that LLPs cannot claim or surrender it.

One thing the LLP does not do is remove personal exposure entirely. Limited liability is liability for the debts of the business. A member who gives a personal guarantee on a lease or a facility is personally liable on that guarantee, and a member who provides professional services negligently can still be sued personally in tort. The structure protects you from the firm's ordinary trading debts, not from your own acts.

Related guides and tools

• Sole trader vs limited company - the full tax comparison with worked take-home figures.
• Self-employed calculator - model an LLP member's profit share to take-home.
• Class 2 and Class 4 NI deep-dive - the National Insurance an LLP member pays.
• Self Assessment step by step - filing the personal return that carries your profit share.
• How to set up a limited company - the incorporation alternative.
• Companies House identity verification - LLP members are treated like directors.
• Corporation Tax calculator - what a corporate member, or a company alternative, would pay.
• VAT registration guide - the £90,000 threshold.
• Data sources and retrieval dates