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ACCA Strategic Professional · Advanced Taxation (UK) · Income tax: income from self-employment

Clara is a member of a UK limited liability partnership (LLP) that carries on a trade. Clara is not treated as an employee under the salaried member rules. Which statement about her tax position is correct?

A non-salaried LLP member is taxed as self-employed on her profit share, paying income tax and Class 4 national insurance. The trading LLP is transparent, so it pays no corporation tax on those profits and PAYE does not apply to her share.

  1. AShe is taxed as employed under PAYE on her whole profit share
  2. BShe is taxed as self-employed on her profit share, with Class 4 national insurance, and the LLP itself is not liable to income tax on the trading profitCorrect
  3. CThe LLP pays corporation tax on the profits and Clara is taxed only on dividends
  4. DShe is taxed as self-employed but pays no national insurance on her share

Explanation

A trading LLP is tax transparent. Members who are not salaried members are assessed as self-employed on their profit shares, so Class 4 applies to their shares. The LLP does not pay corporation tax, and PAYE applies only to salaried members.

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