PM131430 - LLP: Conversions

Business Transferred From General Partnership

Since LLPs were introduced in the UK in 2000, many general partnerships have taken the opportunity to convert to LLP status. Many of those likely to convert will probably already have done so. However, you may still come across others newly transferring the general partnership business to an LLP.

This section provides a brief overview of the main tax consequences.

Income/Corporation Tax: Each partner’s notional trade is regarded as continuing where they become members of the new LLP. Further guidance is available at PM131530. On incorporation of an LLP, a new SA record will automatically set up with a different Unique Taxpayer Reference (UTR) from the one allocated to the previous partnership. The partners can decide whether to use the new UTR or continue to use the old one. It is important that the nominated partner (or their representative) contacts HMRC as soon as possible to advise what they intend to do. This will prevent returns being issued under both references.

Capital gains: The transfer of a business from a general partnership to an LLP will not constitute a disposal by the partners of their interests in the original partnership’s assets unless their fractional interests in partnership assets are changed as a result of the transfer, as per the guidance at CG27070.

Stamp Duty Land Tax: The transfer of chargeable interests to the LLP will be exempted from charge if certain conditions are met. Please refer to SDLTM33690 for full details.

Inheritance Tax: The transfer does not give rise to any disruption in the partner’s holding of the partnership interest (see IHTM25094).

VAT: The consequences are a little different in that the transfer cannot be ignored. However, the ‘Transfer of Going Concern’ provisions should apply to prevent any charges arising (see the guidance in VTOGC - the VAT Transfer of a Going Concern manual). The LLP can take on the old partnership’s VAT registration. To do so, Form VAT68 must be completed and returned to HMRC. Information about how to do this is available on our internet site here.

PAYE: As the business is transferred from one employing entity to another, this also cannot be disregarded. The ‘PAYE succession’ rules can apply if the old partnership and new LLP agree that the PAYE scheme can simply continue and need not be closed down, with the new LLP taking over the responsibility for operating the scheme. This is provided for by Regulation 102 of the Income Tax (Pay as You Earn) Regulations 2003, which applies to treat the transfer as a PAYE succession. Otherwise, the new LLP will commence a new PAYE scheme; the old partnership will need to cease its PAYE scheme and issue forms P45 to all employees. Guidance on this topic is available at PAYE30045.

Business Transferred From Company

The use of LLPs as a business structure is becoming more commonplace, and some taxpayers have considered that it would be beneficial to transfer a business previously carried on by a company into an LLP. There are no tax reliefs available when transferring a business from a company to an LLP. As such, the normal rules will apply. For example, it is likely that capital gains will be triggered. There will also be a cessation of the trade, meaning that any unutilised losses will not be available to be carried forward.