Partner tax in an LLP against corporation tax and extraction from a company, on 2026/27 rates including the dividend increase that took effect on 6 April 2026 — with the SRA consequences that the tax number does not show.
The profit the members share between them in an LLP — before drawings, before partner salaries, after everything else.
Equity only. Salaried staff and fixed-share members taxed as employees sit in the cost base above.
£12,570 keeps the salary inside the personal allowance, which is the usual starting point. Raise it to see the trade-off against dividends.
Illustrative figures on 2026/27 rates and simplified assumptions. This is information, not advice, and it is no substitute for a proper calculation on your firm's real numbers. Ask us for the accurate version — it's free.
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The two sides are not the same calculation done twice. An LLP is transparent: the firm pays no tax, each member is taxed personally on their allocated share whether they draw it or not, at 20%, 40% or 45% plus Class 4 National Insurance at 6% and then 2%. A company is opaque: it pays corporation tax on its own profit first, and the money only reaches the partners when it is extracted as salary or dividends, each of which is taxed again in their hands.
So the company column here assumes full extraction — every pound of post-tax profit paid out as dividends in the same year. That is the fair comparison, because it is the only way the partners end up in the same position as LLP members. It is also the comparison that flatters a company least, which is the point: if a company still wins on these assumptions, it wins.
Corporation tax is 19% on profits up to £50,000 and 25% from £250,000, with marginal relief between the two at a 3/200 standard fraction, giving an effective 26.5% on every pound in that band. Those limits are divided by the number of associated companies plus the company itself, which is the point most summaries leave out. One associated company — a service company or a property company — means dividing by two, so the limits become £25,000 and £125,000. Three associated companies means dividing by four: £12,500 and £62,500. The calculator above assumes none, so a firm that has any gets less of the 19% band than it shows.
Dividend tax went up. The ordinary rate moved from 8.75% to 10.75% and the upper rate from 33.75% to 35.75%; the additional rate stayed at 39.35% and the dividend allowance stayed at £500. For a law firm weighing up incorporation, that is the single biggest change to the arithmetic in years, because dividends are how the money actually gets out of a company. Any comparison you were shown before that date understates the company's cost, and any calculator still using 8.75% and 33.75% is giving you last year's answer.
The direction of travel is that full extraction from a company and a profit share in an LLP now land close together for most partners at most profit levels. Where the company keeps a genuine advantage is retained profit: money left in the business has borne 19% to 26.5% and no more, which is why firms funding lockup, an acquisition or a large WIP build sometimes incorporate for cash reasons that have nothing to do with a partner's marginal rate.
Authorisation. If every manager and interest holder is legally qualified, a firm can be authorised as a recognised body. The moment a non-lawyer holds an ownership interest — an outside shareholder in a company, a non-lawyer finance director admitted as a member — the firm cannot be a recognised body and must be authorised as a licensed body, an ABS. That is a different and more onerous route, and every manager and owner needs SRA approval.
Insurance. Minimum professional indemnity cover under the SRA's minimum terms is at least £3 million for any one claim where the firm is a relevant recognised body or licensed body — which covers LLPs and companies — against at least £2 million for a traditional partnership of individuals. Defence costs carry no monetary limit either way, and six years of run-off cover is required on cessation.
Responsibility for client money. Rule 1.2 of the Accounts Rules makes the authorised body's managers jointly and severally responsible for compliance by the body, its managers and its employees. Incorporating does not put a company between you and that. If you hold client money you still need the annual Accountant's Report, prepared and signed by an accountant who is a member of a chartered body and works for a registered auditor — see how that works and who signs it. A statutory audit is a different thing entirely: most law firm LLPs and companies sit under the thresholds that apply for periods beginning on or after 6 April 2025 — turnover of £15 million, a balance sheet total of £7.5 million and 50 employees, of which two must be met — and have no statutory audit at all.
Three practical points the arithmetic above leaves out. Both an LLP and a company file accounts at Companies House, so neither is private; only a traditional partnership of individuals is. Incorporation is a transfer of a business, with goodwill, capital gains and a change of VAT registration and client-account arrangements to plan around. And if your firm has fixed-share members, check them against the salaried members rules first — where all three conditions in sections 863A to 863D of ITTOIA 2005 are met, the member is taxed as an employee, with PAYE and 15% employer National Insurance on their remuneration, which changes the LLP side of this comparison before you get to the company side.
The structure page sets the whole question out in plain terms, the LLP page covers how members' capital and profit allocation actually work, and the drawings calculator shows what either structure means for the money you can take each month. When you want it modelled on your firm's real numbers rather than a single profit figure, ask us for the accurate version.
These tools use sensible simplifications. A free conversation gets you the accurate version — and usually two or three things worth fixing before your next reporting period ends.
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