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Community > Small Business >

Setting up a UK LLP in Xero

Started by Paul Webster -   in Small Business

I've ran a partnership for just over 10 years with my wife (50/50), doing VAT and accounts ourselves.

We're now looking to move to an LLP structure, basically just to safeguard our personal assets from the business. Although we've dealt with all taxes and returns etc. ourselves we've never needed to draw up a balance sheet (or in fact a profit and loss account - as not needed for small business in the Partnership tax form).

As an LLP I understand that our tax obligations and reporting will basically stay the same as now, the main change will be that we would additionally have to file accounts (balance sheet, possibly also profit and loss) with Companies House. We've no need for payroll, and the LLP will always be 50:50 between the 2.

I'm hoping that using FreeAgent will simplify the production of accounts for Companies House, so that we can also do this ourselves (as with our tax return etc.) I realise Xero doesn't automatically submit LLP accounts to Companies House but assume I will be able to copy figures across with some work?
I note that for a Ltd company the Instafile add on can do this but not (yet) for LLPs.

My main confusion at the moment is how to record profits being allocated to partners (in fact always done as one transaction into the partners joint account). Do we just enter as drawings whenever we withdraw money from the business? What do we then need to do on profit share at year end in the accounts (if anything beyond declaring them in partnership and personal tax returns)?
To answer the last part of your post - Xero will show the profit (or loss) for the financial year as retained profit on the Balance Sheet. This can be apportioned between the partners by posting a journal, dated at the financial year end, debiting the equity account for retained earnings and crediting each partner's "capital account" with their share of the profits.

Any drawings you take from the business will need to be recorded in Xero. However, drawings have no affect on profits.

John Knight