Part 4 LLPs – accounts, annual returns and charges
February 2013
53A.53 Duty to keep accounting records
Every LLP must keep adequate accounting records sufficient, amongst other things:
If an LLP fails to keep proper accounting records every member who is in default commits a criminal offence, unless the failure was honest and excusable [Note 2].
53A.54 Location of an LLP’s accounting records
The accounting records (see paragraph 53A.53) must be kept at the registered office of the LLP or at any other place agreed upon by the members. The members must be able to inspect the accounting records at all times. The accounting records must be kept for three years from the date of creation [Note 3]. If an LLP fails to comply with these requirements every member who is in default commits a criminal offence, unless the failure was honest and excusable [Note 4].
53A.55 Accounting reference date
The accounting reference date of an LLP is usually the last day of the month in which its anniversary of incorporation falls but this may be changed with the agreement of the members [Note 5]. A change to the accounting reference date must be made prior to the deadline for submitting the accounts. It is normally only possible to extend the accounting reference date once every five years and not for a period greater than 18 months [Note 6].
53A.56 An LLP’s financial year
An LLP’s first financial year starts on the day of incorporation and ends on the accounting reference date (see paragraph 53A.55) or a date up to 7 days either side of this date [Note 7]. Accounts for the following year start the day after and end on the accounting reference date (or within 7 days of that date) [Note 8].
53A.57 The content of an LLP’s accounts
A set of accounts, called an LLP’s individual accounts, would normally include:
The required content and format of the above documents can be found in the schedules to the appropriate legislation [Note 10][Note 11]. For further details on the exemptions for small and medium-sized LLPs see paragraphs 53A.61 and 53A.66. In all instances the profit and loss account must give a true and fair view of the profit or loss during the financial year. The balance sheet must give a true and fair view of the state of the LLP’s affairs at the end of the financial year [Note 12].
53A.58 Approval of an LLP’s accounts
A full set of an LLP’s annual accounts must be circulated and approved by the members and the balance sheet signed by a designated member on their behalf. Where an abbreviated set of these accounts are filed with the registrar of companies the abbreviated balance sheet must contain a statement in a prominent position that the accounts were prepared under the small LLPs regime (see paragraph 53A.61). If these requirements are not complied with then any member who is in default commits a criminal offence [Note 13]. Where the accounts are audited (see paragraph 53A.59) they must state the name of the auditor and be signed by him/her [Note 14].
With the exemption mentioned in paragraph 53A.61 an LPP must employ auditors to prepare a report. The report confirms whether the accounts give a true and fair view of the profit (or loss) and the state of affairs of the LLP [Note 15]. Where the auditor, after an investigation, forms the opinion that the LLP has not kept adequate accounting records or that the accounts are not in agreement with the accounting records it should be included in his/her report [Note 16].
For an LLP to qualify as a small LLP in the relevant financial year two of the following conditions must be met:
Similar provisions apply to parent LLPs, see section 383 of the Companies Act 2006 as modified by regulation 5 Limited Liability Partnerships (Accounts and Audit)(Application of Companies Act 2006) Regulations 2008 for further details. A number of LLPs, for example, an authorised insurance company, a bank, an e-money issuer, are excluded from the small LLP regime [Note 18].
53A.61 Small LLPs – accounting exemptions
Where the members are in agreement, a small LLP may deliver to the registrar of companies an abbreviated balance sheet. An LLP is not required to include the profit and loss account [Note 19]. The balance sheet should include a statement in a prominent position (see paragraph 53A.57) that the accounts have been delivered in accordance with the small LLP regime [Note 20].
53A.62 Auditor’s report – abbreviated accounts
Where abbreviated accounts have been filed any auditor’s report must confirm that the LLP has met the requirements for the small LLP regime exemption (see paragraph 53A.61). A copy of the auditor’s statement must be circulated to the members together with the full accounts.
53A.63 Small LLPs – accounts exemption from audit
Most small LLPs, with a number of exceptions, for example, an authorised insurance company, a bank, an e-money issuer, an employers’ organisation [Note 21], are exempt from the audit provisions of the legislation [Note 22]. Section 479 of the Companies Act 2006 as amended by regulation 33 of Limited Liability Partnerships (Accounts and Audit)(Application of Companies Act 2006) Regulations 2008 sets out the conditions for a group LLP to qualify for the small LLP exemption.
53A.64 Companies House filing requirement for an audit-exempt LLP
If a small LLP qualifies for audit exemption it may submit full unaudited accounts or an abbreviated unaudited balance sheet. The balance sheet must contain a statement signed by the designated member confirming:
To qualify as a medium-sized LLP in the previous financial year two of the following conditions must be met:
Similar provisions apply to parent LLPs, see section 466 of the Companies Act 2006 as modified by regulation 26 Limited Liability Partnerships (Accounts and Audit)(Application of Companies Act 2006) Regulations 2008 for further details. A number of LLPs, for example, those carrying on an insurance market activity and/or have their securities traded on an EEA state regulated market, are excluded from the medium-sized LLP regime [Note 26].
53A.66 Medium-sized LLPs – accounting exemptions
A full set of an LLP’s annual accounts must be circulated and approved by the members and the balance sheet signed by a designated member on their behalf. However a medium-sized LLP may omit disclosure about compliance with the accounting standards and related party transactions. A medium-sized LLP may also file a slightly reduced version of the profit and loss account [Note 27]. The balance sheet should include a statement in a prominent position (see paragraph 53A.57) that the accounts have been delivered in accordance with the medium-sized LLP regime [Note 28]. The abbreviated accounts should be filed with a special auditor’s report (see paragraph 53A.67).
53A.67 Medium-sized LLPs – special auditors report
The special auditor’s report should confirm that the LLP is entitled to deliver abbreviated accounts in accordance with the medium-sized LLP regime and that they were prepared in accordance with regulation 4 of Large and Medium-sized Limited Liability Partnership (Accounts) Regulations 2008 [Note 29].
53A.68 Responsibility for publishing the accounts
The members of an LLP are responsible for making the accounts available to other members, debenture holders [Note 30] and to file the accounts with the registrar of companies [Note 31]. Failure to comply with these duties is a criminal offence and may lead to disqualification (see paragraph 53A.104) [Note 32].
53A.69 Timescale for the publication of the accounts
Once signed, the accounts must be distributed to each member of the LLP and to every debenture holder (see paragraph 53A.80). The accounts should be circulated before the date the accounts are filed with the registrar of companies or, at the latest, before the end of the period for filing accounts [Note 33]. The time limits for filing the accounts with the registrar of companies are explained in paragraphs 53A.70 and 53A.71. Where the members are in agreement the accounts can be published on the LLP website. Where a recipient has provided a suitable electronic address the distribution may be by electronic means.
53A.70 Filing the first set of accounts at Companies House
The first set of accounts must be filed with the registrar of companies within 21 months of incorporation or 3 months from the accounting reference date (see paragraph 53A.55), whichever is the greater [Note 34]. Where the accounting reference period has been shortened the time allowed for filling accounts is the longer of 9 months, from the shortened accounting reference date, or 3 months from the date of the notice shortening the accounting reference date [Note 35].
53A.71 Filing subsequent sets of accounts at Companies House
After filing the first set of accounts all subsequent accounts must be filed within 9 months of the accounting reference date [Note 36]. The only exception is where the accounting reference date has been shortened. In this case accounts should be filed 9 months from the shortened accounting reference date or 3 months from the date of the notice shortening the accounting reference date, whichever is the longer [Note 37].
53A.72 Filing of accounts –extension of time
In exceptional circumstances, for example an unforeseen event outside the control of the LLP or its auditors, an application may be made to extend the time limit before the normal deadline (see paragraphs 53A.70 and 53A.71). The application will be considered by the Secretary of State who may then issue a notice agreeing to an extension [Note 38].
53A.73 Late filing of accounts
Where accounts are filed late an automatic civil penalty will be applied by the registrar of companies. The level of the fine varies with the lateness of the accounts. The current penalty levels can be found here [Note 39]. In addition the designated members (see paragraph 53A.38) of the LLP are guilty of a criminal offence and liable on conviction to a fine, plus a daily default fine for continued contravention.
An LLP must file an annual return with the registrar of companies [Note 40]. The annual return sets out some important basic information about the LLP including the following information:
A copy of the annual return form can be found here.
53A.75 Filing the annual return with the registrar of companies
The annual return must be filed with the registrar of companies every year. The return must be filed within 28 days of the anniversary of incorporation, or within 28 days of the anniversary of the last return [Note 41]. If the annual return is not filed within the time limits it is a criminal offence and the LLP and the designated members are liable, on conviction, to a fine. [Note 42].
The profits of an LLP are not necessarily subject to corporation tax. Where an LLP provides a trade, profession or other business with a view for profit tax legislation treats the LLP as a partnership carried on by the individual members and not by the LLP. Consequently the members of the partnership are taxed on their shares of any income, or other gains, resulting from their membership of the LLP [Note 43]. A corporate member would be subject to corporation tax. Where an LLP carries on business a wholly or mainly in making investments it will be subject to corporation tax [Note 44]. LLPs, where appropriate (see paragraph 78.8), must register for VAT in the same way that a limited company is required to register (see Chapter 78).
53A.77 Taxation of chargeable gains
In respect of chargeable gains the tax legislation treats LLPs as partnerships with regard to the following:
53A.78 Stamp duty on transfer of assets to an LLP
Stamp duty is generally not payable on the initial transfer of partnership assets to an LLP. The initial transfer should be in connection with the incorporation and made within 12 months of the date of an LLP’s incorporation [Note 46].
53A.79 Borrowing powers of an LLP
An LLP is free to borrow money under the members general powers to manage the business subject to any restrictions in a partnership agreement (see paragraphs 53A.44 to 53A.47) . Where a member exceeds the limits set on borrowing they may become personally liable. The creditor in these circumstances would not have their rights against the LLP diminished as long as they were acting in good faith.
An LLP, as it has a separate legal identity, is able to create and issue debentures to secure its borrowing. This is beneficial to members who may avoid providing personal guarantees or security over their own individual assets. Part 5 of Chapter 40 provided further guidance on secured debts, including creating fixed and floating charges, issuing debentures and registering charges. All references to companies in that chapter should be read to include LLPs. Where an LLP issues a debenture it is required to keep a register of debenture holders [Note 47].
Most charges or mortgages created by an LLP must be filed with the registrar of companies [Note 48]. The time limit for registration of the charge or mortgage is 21 days beginning with the day after the day on which the charge is created. Separate arrangements apply to charges created outside of the United Kingdom [Note 49]. The following are examples of charges which must be registered: a charge on land, a charge to secure the issue of debentures, a charge on book debts, and a floating charge on the LLP’s property or undertaking. An offence is committed by the LLP and every designated member who is in default, for failure to comply with these requirements. If the charge is registered by a third party the LLP does not commit an offence if it fails to comply with these regulations [Note 50].
53A.82 Failure to register a charge
An LLP must comply with the requirements for registering a charge, see paragraph 53A.81 or the charge is void against a liquidator, an administrator or a creditor of the LLP [Note 51].
Companies House provide two detailed guides covering the incorporation (available here) and life (available here) of LLPs.
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