A Limited Liability Partnership (LLP) is a business structure with a legal status that empowers individuals to co-found it while maintaining operational and managerial flexibility, just like a traditional partnership.
However, unlike the general partnership, the collaborating partners shall not stand personally liable for any debts or damages incurred as a result of the partnership.
Rather, their financial liability does not exceed the amount they had initially invested into the LLP. Hence, under the ambit of an LLP, your personal assets shall remain safeguarded against any business-associated claims and legal proceedings.
Going further, once incorporated and started carrying out its economic (profit-yielding) activities, it becomes mandatory for an LLP to keep an exhaustive record of its finances and file them timely and appropriately to reflect transparency in its transactions and maintain compliance with HMRC.
In this blog post, we will discuss at length the accounting obligations for an LLP set forth by the HMRC to stay compliant with the accounting requirements.
Furthermore, if you are looking for a detailed guide on how to meet the LLP’s filing and reporting obligations, our blog, What are the filing requirements for an LLP at Companies House? is for you.
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The Accounting Obligations for an LLP: Everything you should know
The LLP’s accounting obligations mean the legal requirement for an LLP to keep proper and accurate financial records. These records exhibit LLP’s financial standing and activities, ensuring transparency and compliance with relevant regulations.
Moreover, the personal liability of each partner becomes confined or limited to the amount of investment they poured into the business. The following is a step-by-step comprehensive guide to all the accounting obligations of an LLP including:
Preparing and filing Statutory Accounts:
It is obligatory for every limited liability partnership (LLP) in the UK to prepare and file the company’s accounts annually. These accounts are called the Statutory Accounts. Plus, these LLP accounts alongside LLP’s tax return must be filed with the Companies House and HMRC annually.
More importantly, the LLP’s statutory accounts must include the following statements:
- A Financial Statement, also called a Balance Sheet, depicts the value of assets, liabilities and the company’s capital.
- Comprehensive Income Statement, which is also called profit and loss account. It displays the company’s income and spending for the financial period.
- Notes to the Accounts. They provide additional details on the accounts.
- Member’s report.
It is pertinent to mention that if you have a small LLP, you may opt to file only the Balance Sheet and Notes to the Accounts to the Companies House.
Filing the accounts before the due date:
It is crucial that the LLP’s accounts be filed before the due date, which is within nine months from the financial year-end. Therefore, the LLP’s accounts must be filed with Companies House within the due period.
More importantly, you should heed that failure or remissness shown in filing the accounts on time will result in civil penalties in line with the Companies House regulations. In addition, the penalty amount depends on how late the accounts are filed.
It ranges between £150 and £1,500 for deferred filing. Hence, refer to the Companies House guidance on late filing penalties for further information.
Ensuring accounts compliance with accounting standards:
Ensuring accounts compliance with the authorities concerned is also significant when fulfilling the accounting obligations for an LLP. The accounts prepared by the LLP must comply with established accounting standards. These standards specifically include the UK Generally Accepted Accounting Practice (GAAP) or the International Financial Reporting Standards (IFRS).
Furthermore, the LLP’s size and company’s structure determine which standard to choose. To explain, the UK GAAP may be more viable and involve fewer complexities for smaller LLPs.
On the contrary, larger LLPs or entities seeking international recognition might go for IFRS. It is worth pointing out that adherence to these standards fosters fairness and reliability in financial reporting.
Preparing financial statement:
As mentioned above, a Financial Statement, also called a Balance Sheet, depicts the value of assets, liabilities and the company’s capital.
An LLP’s financial statement is meant to reflect an accurate overview of your company’s financial status. Added to that, The specific requirements for financial statements can differ based on the size of your LLP.
To illustrate, according to HMRC, Your company will be considered small if it has any two of the following:
- It has a turnover of £10.2 million or less.
- Its total assets stand at £5.1 million or less on its balance sheet.
- The average number of employees in the LLP is 50 or less.
Fortunately, if your company is small, you can use the exemption and prepare simplified accounts. As a result, your company’s accounts do not need to be audited.
Next, the companies whose assets exceed the above-cited criteria are categorised as medium and Large LLPs. They are required to prepare more detailed and thorough financial statements.
Besides, For medium and large LLPs, the accounts of medium and large LLPs must be audited by a registered auditor, unless the LLP qualifies for audit exemption.
Notably, even when not required, performing an audit of your LLP accounts audit can bolster the partnership’s credibility with lenders and stakeholders.
Maintaining accurate financial records:
Another considerable requirement among the accounting obligations for an LLP is to keep a correct and updated financial record of the LLP. For example, all the LLP’s assets and liabilities, income and spending, and financial transactions must be documented so that nothing is left unaccounted for.
Also, these records are required to be maintained for at least 6 years. Finally, failing to keep records could result in penalties from HMRC.
Maintaining PSC rules compliance:
According to HMRC, a person with significant control (PSC) owns or controls the LLP. They’re also called beneficial owners.
Ordinarily, PSCs fulfil one or more of the following conditions, called the nature of control. Additionally, the LLP’s PSC register must display which conditions are met.
A PSC holds:
- More than 25% of shares in the company.
- More than 25% of voting rights in the company.
- The authority, directly or indirectly, to appoint or remove the majority of members involved in the LLP’s management and operations.
In addition, The LLP can have one or more PSCs. It could be you, the designated member, or someone associated with the partnership. It is essential to record the PSC’s details on the LLP’s PSC register and submit this information annually as part of the Confirmation Statement.
Lastly, the Confirmation Statement must be filed annually with Companies House.
Concluding remarks:
Ultimately, the fundamental objective of setting up an LLP is to let the partners pocket the rewards of its profit-generating features alongside limited liability protection.
Nevertheless, in addition to reaping its benefits, it is crucial for the partners to ensure that all the accounting obligations for an LLP are met to avert any compliance-related legal consequences.
Also, if wrapping your head around the nitty-gritty of LLP accounting is becoming a gruelling task for you, turn to Accountingfirms. With the help of well-versed and competent accountants on our platform, you can ensure that your LLP company stays compliant with all the accounting obligations.
Disclaimer: The information provided on AccountingFirms.co.uk is for informational purposes only and should not be considered as financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.