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Partnerships, including limited liability partnerships (LLPs), are transparent for tax purposes. This means that the partnership itself is not subject to tax: any profits are instead taxable on the partners. Generally, for tax purposes, each partner is treated as receiving their share of the income and expenses of the partnership as they arise. This treatment is overridden in particular cases by anti-avoidance legislation intended to prevent partnership structures from being used to avoid (or reduce) tax.
There is a partnership return that shows the profit and loss account of the partnership and any adjustments made for tax, including the capital allowances. This shows the profit shares allocated to each partner on the Partnership Statement. Each partner then also completes a return on his own behalf showing the share of partnership profits corresponding to the partnership return.
This is why this is quite often a difficult area to tackle on one’s own without professional guidance. Moreover, structuring a conventional partnership or LLP requires detailed planning and structured legal agreements to guarantee that members’ legal rights and responsibilities are well-defined, as well as recognition of the tax repercussions and fiduciary responsibilities which are unlike those of employees.
Please call our experienced team for a detailed information.