LLPs in 2026

Running a business through a limited company has become noticeably more expensive. Employer’s National Insurance rose to 15% in April 2025, with the threshold cut to £5,000. From 6 April 2026, dividend tax rose by another two percentage points to 10.75% for basic rate taxpayers and 35.75% for higher rate taxpayers. For owner-managers who pay themselves through salary and dividends, each change has chipped away at the arrangement that made a company the default choice. With the Budget on 28 October expected to bring further changes, many are taking a fresh look at a structure professional firms have relied on for 25 years: the limited liability partnership. So what does an LLP offer, and is it time to rethink your structure?

What exactly is an LLP?

An LLP is a separate legal entity created under the Limited Liability Partnerships Act 2000. Like a company, it is registered at Companies House, can own property and sign contracts in its own name, and carries on regardless of who joins or leaves. Like a traditional partnership, its members run it under a private agreement, and it is taxed as a partnership rather than a company. That combination gives it most of its advantages. For a fuller introduction, our earlier article on LLPs covers the basics, and LLP v Ltd sets the two structures side by side.

How does an LLP protect your personal assets?

The LLP model was introduced to solve a specific problem. In a traditional partnership, each partner is jointly and severally liable for the firm’s debts, including those caused by another partner’s mistakes. A single negligence claim could put every partner’s home at risk. In an LLP, the business owns its own debts. A member’s exposure is generally limited to the capital they have put in and anything they have agreed to contribute. This is particularly reassuring for members not involved in day-to-day management. The protection has sensible limits: lenders may still ask for personal guarantees, and members who trade wrongfully or dishonestly can still be held personally liable.

What are the benefits of flexible profit sharing?

In a limited company, profits generally follow shareholdings. Paying owners differently usually means creating separate share classes, and changing the arrangement involves formal steps that leave a public record. An LLP works differently. Members share profits however they agree, and the agreement can reward capital, workload, seniority, or results in whatever mix suits the business. The split can be revisited each year, so a member who steps back can take a smaller share without anyone buying or selling shares. For example, take three members who built a consultancy together. When one moves to two days a week ahead of retirement, the members simply agree a smaller profit share for that year, while the member winning the most new work takes a larger one. In a company, the same change would usually mean reorganising shares or relying on salaries and bonuses, with the extra National Insurance that brings. The LLP agreement is private and is not filed at Companies House, so the commercial arrangements between members stay between members.

How are LLP profits taxed, and is an LLP really less tax efficient?

An LLP is tax transparent: it pays no Corporation Tax. Instead, each member is taxed on their share of the profits through Self Assessment, paying Income Tax and Class 4 National Insurance as a self-employed individual. In a limited company, by contrast, profits pass through two layers of tax before they reach the owner: Corporation Tax of up to 25% in the company, then dividend tax on the shareholder at the higher rates that apply from April 2026. Taking salary instead avoids dividend tax but brings employer’s National Insurance. For members, the tax advantages of an LLP come down to four points:

• One layer of tax: profits are taxed once, in the members’ hands, rather than in the company and again as dividends
• No employer’s National Insurance: the LLP pays nothing on members’ profit shares, compared with 15% on salaries above £5,000
• Lower National Insurance rates: Class 4 contributions are 6% on profits between £12,570 and £50,270 and 2% above that, against 8% and 2% for employees
• Better cash flow: tax is settled through Self Assessment rather than deducted monthly through payroll, so there is usually a lag between earning profits and paying the tax on them

Comparison guides often list tax as a drawback of LLPs because members are taxed on all profits as they arise, whether or not they are drawn. That holds if you plan to leave substantial profits in the business. For owner-managers who draw most of what the business earns, a single layer of tax can make an LLP the more efficient choice, as the example below shows.

What does this look like in practice?

To see the difference, take a business owner who wants to receive £159,000 after tax in 2026/27. For simplicity, we assume all of their income is taxed at the top rates:

Description	Bonus	Dividend	LLP
Pre-tax payment	£352,941	£349,547	£300,000
Employer’s National Insurance @ 15%	£52,941
Corporation tax @ 25%		£87,387
Received by the individual	£300,000	£262,160	£300,000
Tax @ 45%	£135,000		£135,000
National Insurance @ 2%	£6,000		£6,000
Dividend tax @ 39.35%		£103,160
Net cash received	£159,000	£159,000	£159,000
Effective tax rate	55.0%	54.5%	47.0%

Figures are based on 2026/27 rates and rounded to the nearest pound. For simplicity, all income is taxed at the top rates: 45% Income Tax, 2% National Insurance for employees and LLP members, and 39.35% dividend tax. In practice, lower rates apply to the first part of a person’s income.  The difference comes from how many layers of tax sit between the profit and the individual. A bonus attracts the employer’s National Insurance before Income Tax is paid, while a dividend is paid from profits that have already borne Corporation Tax. An LLP has neither, so the profit is taxed only once, in the member’s hands. That is between £49,500 and £53,000 less profit needed each year for the same income, and an effective tax rate of 47% against 54.5% or more through a company. The figures are simplified to illustrate the principle, and the right structure will always depend on your own profits, plans and circumstances.

Who benefits most from an LLP?

An LLP tends to suit:

• Professional practices such as accountants, solicitors, architects and consultants, where members work in the business and expect to share in what they bring in
• Owner-managed businesses where the owners draw most of the profit each year
• Joint ventures, where several parties want limited liability without negotiating share capital

Family businesses deserve particular mention. Because profit shares can follow contribution, the next generation can join as members on a modest share and take on more as their role grows, without the founders handing over equity in one step. Founders can step back gradually in the same way, and the LLP agreement can set out in advance how a member’s capital is repaid when they retire. For wider family wealth planning, a Family Investment Company can sit alongside the LLP.

What does this mean for you?

For many owner-managers, the last two years of tax changes have eroded much of the advantage a limited company once had. An LLP offers limited liability and flexibility in how profits are shared, and it taxes those profits once, not twice. However, an LLP won’t suit everyone. A company may still be the better fit if you plan to retain large profits, raise equity or offer share options. Some members can be taxed as employees under the salaried member rules, and property arrangements need particular care following HMRC’s Spotlight 63A. The benefits depend on getting the structure and the LLP agreement right at the outset. If you already trade through a company, our guide to converting a limited company to an LLP explains how the move works in practice. Choosing or changing your business structure has long-term tax consequences, and the right answer depends on your profits, your plans and the people involved. Generic online comparisons cannot model that. Wilkins Southworth can review your figures, compare structures side by side, and, if an LLP is right for you, ensure it is set up properly from the start. Contact one of the team to discuss your circumstances and find out how we can help.