Setting up a partnership or Limited Liability Partnership (LLP) allows a group of people and organisations to work together in business, but there are often questions around what this means for pension auto-enrolment. In this article we’ll go over some of the most frequently asked questions around pension autoenrolment for these types of structures.

What is a partnership?

A partnership is where two or more people (or organisations!) set up in business together, but without any legal separation between themselves and the organisation.

The way partnerships pay tax is a bit different to how it works in other businesses. Although the partnership submits a tax return, it doesn’t actually pay tax itself. Instead, partnerships are ‘transparent’ in that HMRC ‘look through’ the partnership to the partners, and they’re the ones that pay the tax owed on their share of the profits.

Partnerships are as varied as any other business type, and you often find doctors’ surgeries, accountants, architects, and lawyers working as partnerships.

What is a Limited Liability Partnership (LLP)?

A Limited Liability Partnership (LLP) is a more formal method of forming a partnership. Largely similar to a partnership in terms of tax, one of the key differences in a Limited Liability Partnership is that it offers the same sort of limited liability to its partners that a limited company does.

LLPs must register at Companies House and create formal documents showing who owns the business, and how it should be run. Again, this is a bit like a limited company with its memorandum and articles of association.

The key difference between a general partnership and an LLP is the liability of the partners. In an LLP their personal liability is limited, so their personal assets have more protection.
 

Are partners exempt from auto-enrolment?

The partners in a partnership or LLP aren’t usually exempt from pension auto-enrolment, although they might not fit the usual definition of a ‘worker’.

The rules around setting up a workplace pension scheme and automatically enroling eligible employees on to it apply to all employers so if a person is defined as a worker, then they must be included in the auto-enrolment process.

All of the usual eligibility criteria still applies and like any other worker, they can decide to opt-out of the scheme. The problem can sometimes be deciding who is actually classed as an employee, and therefore eligible for auto-enrolment.

Salaried partners

Salaried partners, as the name suggests, draw a regular salary from the partnership. They often have a say in the strategic direction of the business, and they can share in the profits at the end of the year.

Non-salaried partners

Then we have the non-salaried partners, and this is where it gets a bit more complicated. Even though a partner might not receive a salary, they might still be classed as a ‘worker’ for pension purposes, and this could make them eligible for auto-enrolment rules.

It’s also worth noting that the definition of ‘worker’ for the purposes of pensions is subtly different to the definitions used for tax, employment, immigration, and IR35 rules. Make sure you assess each position using the right legislation!

 
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