There are some key differences between LLP and Ltd and I’m prepared to say that in our opinion, Ltd is best. If you are an LLP, I’d hazard a guess that your collective tax exposure is greater than it would be under a 20/17% CT bill and personal tax liability derived from receipt of dividends instead of profit distribution from a partnership. This is of course before you factor in National Insurance which is also payable on profit distributions in addition to tax at your marginal rate of tax. Lots of Limited Companies do not pay NIC for Directors because they keep Director salaries below that threshold and remunerate via dividends, with a dividend tax allowance and then tax on the rest at marginal rate of tax. All the company needs to do then is monitor profitability to ensure dividends are set at an appropriate rate.
As for how the change of status from LLP to Ltd impacts on your ability to access structures that actively assist your commercial endeavours, well that’s an easier picture to paint and is where our expertise lies.
Depending on your view of things, there is little to prevent any partner within a LLP from becoming a member of a Small Self Administered Scheme. However the crucial step that would need to be taken is one that most LLPs would sooner avoid: they’d need to make at least one Partner an employee on PAYE, or have an employee on PAYE as the catalyst for membership of the SSAS, enabling other members (the Partners) to be inducted. Or a company elsewhere to set up a SSAS for a director as a Member so that the Partnership could then be adhered to the SSAS so that the Partners can then join. The key issue here is that HMRC tax approve schemes one by one and scrutinise the sponsor (the LTD or the LLP) and are likely to look closer at the LLP. The fact is, only a tiny minority of LLPs probably sponsor SSASs and we have none within our portfolio, which says something.
With a Limited Company, the Client Agreement is a legal agreement between that company and the SSAS Administrator (PSG). The Ltd Company sponsors the SSAS and invites people to join (usually the Directors but could be pretty much anyone). The company then has a pension scheme that is governed by HMRC and regulated by the Pensions Regulator (not the FCA) and can facilitate a whole raft of tax efficient investments and company friendly transactions.
At a very basic level, company owners can elect to make their SSAS their qualifying scheme for auto-enrolment for at least the company directors/senior management and kill two birds with one stone. The option would still exist to simultaneously run a lower cost separate scheme for staff members to keep the affairs of both parties separate. A SSAS can be established without paying a contribution, but then annual contribution allowances could then be used to mitigate annual CT bills by paying some of the profit that would otherwise be declared, into the pension where those funds grow tax free in investments of your choosing. Contributions reduce profit, hence the mitigation of corporation tax, but must be balanced against profitability for the payment of dividends.
Add to this the fact that the SSAS can borrow from the company (or from a bank of course) or lend to the company (always nicer than approaching a bank for credit). The SSAS can acquire property and benefit from paying down any borrowing from rental income that is not subject to tax and with no Capital Gains Tax to boot. In most cases if you allow for the likelihood that, all told, business owners are 50p in the pound tax payers, if you have to repay a mortgage of £200,000, you’ll need to earn £400,000 to do it. A SSAS would need £200,000 because it is not taxed.
The list of benefits a SSAS offers a Limited Company and its Directors is extensive, but it is only one facet of any decision you collectively make to move from being in a LLP. You will, of course, want to canvass opinion from pure tax experts in order to make a rounded decision, but it’s certainly a good idea to factor in what you might actively do with Ltd status (as opposed to just occupying it passively) before making a fully informed decision.