Can an LLP pay dividends

No. A limited liability partnership has no share capital and no shareholders, so there is nothing for a dividend to be paid on. Profits belong to the members in the shares set by the LLP agreement, and money reaches members as drawings against those shares, not as dividends.

Tax investigation insurance from £108.75 a year (£9.06 a month).Pays up to £100,000 of your accountant's fees if HMRC opens an enquiry. No excess. Buy online in a few minutes.

See my price in 2 questions How the cover works Accountant? Offer cover to your clients or call 01795 841 310

Why can an LLP not declare a dividend?

A dividend is a payment to a shareholder in respect of shares. HMRC’s Savings and Investment Manual at SAIM5040 notes that company law does not actually define a dividend, and that the courts in Memec v CIR accepted the ordinary businessman’s understanding of a payment out of part of the profits for a period in respect of a share in a company. An LLP has no shares to pay on.

An LLP is still a body corporate with legal personality separate from its members (section 1(2) of the Limited Liability Partnerships Act 2000) and it has unlimited capacity (section 1(3)). It can therefore hold shares in a company and receive dividends itself. What it cannot do is pay them, because its members hold an interest defined by their agreement rather than shares.

The statutory dividend machinery is also missing. Part 23 of the Companies Act 2006, which says in section 830 that a company may only make a distribution out of profits available for the purpose, is not among the parts of the Act applied to LLPs by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009 (SI 2009/1804). An LLP has no articles either, so the model article rules on declaring dividends do not apply. Minutes that record an LLP “declaring a dividend” are using the wrong label for what is really a division of profit, and it is worth correcting the wording before it confuses the accounts or the tax return.

What governs how an LLP’s profits are shared?

Section 5(1) of the 2000 Act says the mutual rights and duties of the members, and of the LLP and its members, are governed by agreement or, where there is no agreement on a point, by regulations. The default rules are in regulation 7 of the Limited Liability Partnerships Regulations 2001 (SI 2001/1090). Two of them shape profit sharing:

Rule (1): all the members are entitled to share equally in the capital and profits of the LLP.
Rule (4): no member is entitled to remuneration for acting in the business or management of the LLP.

Most LLPs replace these defaults with a written agreement setting out fixed shares, points or units, priority profit shares, interest on capital, retentions and the timetable for dividing the year’s profit. Our page on LLP members’ agreements covers what those agreements usually contain.

There is one contrast with a general partnership. Section 24(1) of the Partnership Act 1890 says partners share equally in capital and profits and must contribute equally towards losses. The LLP default in regulation 7(1) deals only with sharing capital and profits, so any obligation on members to fund losses has to come from the agreement.

Worried about an HMRC check? Tax investigation insurance pays your accountant’s fees if HMRC opens an enquiry or compliance check. Solar Protect cover pays up to £100,000 with no excess. It never pays tax, interest or penalties.

From £108.75 a year (£9.06 a month) for individuals, £117.57 for sole traders and £207.50 for companies and partnerships, including IPT and the £20 admin fee.

See my price in 2 questions or call 01795 841 310.

★★★★★ Rated 4.9 out of 5 on Trustpilot from over 160 reviews

What is the difference between a profit allocation and drawings?

A profit allocation, or division, is the decision or the automatic operation of the agreement that gives each member a right to a slice of the profit. Drawings are the cash the member actually takes. The two figures are usually different. Many LLPs let members draw a monthly amount on account during the year, then make a balancing payment once the accounts are finished and profits divided. Some hold back part of each share as a reserve for tax or working capital.

Because drawings are payments on account, a member who draws more than their final allocation normally owes the excess back to the LLP, depending on the agreement. See overdrawn LLP member accounts for how that balance is shown and recovered. A good agreement says who sets the drawings level, how it can be reduced in a poor year and when overdrawn balances must be repaid.

How does profit sharing show in the accounts?

The accounting follows the agreement rather than any dividend concept. Under the LLP SORP, amounts that become due to members under liability participation rights following an automatic division of profits are presented as an expense within profit or loss. Amounts that become due under equity participation rights following a discretionary division are charged directly to equity in the year the division occurs and are not presented as an expense. The basis on which each element of members’ remuneration has been treated must be disclosed and explained.

CCAB published a new LLP SORP in November 2025, effective for periods beginning on or after 1 January 2026. The detail on fixed shares, salaried members and disclosures is on LLP members’ remuneration. For this question, the key point is that undivided profit in an LLP looks a little like retained earnings in a company, but there is no statutory reserves test to pass before members are paid.

Is there any limit on what members can take out?

There is no LLP version of the company test for distributable reserves. The limit comes from insolvency law. Section 214A of the Insolvency Act 1986, inserted for LLPs by Schedule 3 to the 2001 Regulations, applies where, within the two years ending with the start of the winding up, a member withdrew property of the LLP and knew or had reasonable ground for believing that the LLP was unable to pay its debts within section 123, or would become unable to do so after that withdrawal taken with other withdrawals made at the same time or in contemplation.

The section covers a share of profits, salary, repayment of or interest on a loan to the LLP, or any other withdrawal of property. On the liquidator’s application the court may order the member to contribute to the LLP’s assets, but only if the member knew or ought to have concluded that after each withdrawal there was no reasonable prospect of avoiding insolvent liquidation, and the order cannot exceed the member’s total withdrawals in the two year period. See LLP clawback under section 214A. In effect, members of a struggling LLP face a solvency based test rather than a reserves test.

How are LLP profit shares taxed compared with dividends?

A trading LLP is normally transparent for tax. Section 863 of the Income Tax (Trading and Other Income) Act 2005 treats the activities of an LLP carrying on a trade, profession or business with a view to profit as carried on in partnership by its members, and section 1273 of the Corporation Tax Act 2009 does the same for corporation tax. HMRC’s Partnership Manual at PM131450 says each member is charged on their share of the LLP’s income or gains as if they were members of a general partnership, and that where the LLP trades each member is taxable on the income they derive from it as trade profits.

Section 863(2) adds that references to a company in the Income Tax Acts do not include such an LLP. So the dividend allowance and the dividend tax rates have no part to play: an individual member pays income tax on the profit share as trading income, and the charge follows the share allocated, not the cash drawn. National Insurance for members is covered on National Insurance for partners and LLP members. PM131450 also notes that members caught by the salaried members rules have PAYE and Class 1 National Insurance applied instead.

How might this look in practice?

Illustration only. Ash, Bea and Cal are members of a trading LLP. Their agreement gives Ash a priority share of £20,000 and divides the remaining profit 40:30:30. Each member draws £3,000 a month on account. Profit available for division for the year is £200,000.

Ash: £20,000 plus 40% of £180,000, a total of £92,000. Drawings of £36,000 leave £56,000 due to Ash.
Bea: 30% of £180,000, which is £54,000. Drawings of £36,000 leave £18,000.
Cal: the same as Bea, £54,000 with £18,000 still due.

No dividend is declared at any point. Each member is taxed on the allocated share of £92,000, £54,000 and £54,000, not on the £36,000 each has drawn. If the LLP keeps part of the balances back as a tax reserve, that changes the cash timing but not the taxable amounts.

What mistakes come up most often?

Calling profit shares dividends in minutes, emails or bank references, which invites questions about which tax treatment applies.
Running the LLP without a written agreement, so the default of equal shares in profits applies to members who expected something different.
Treating drawings as the taxable figure instead of the allocated profit share.
Letting members keep drawing in a loss making year without considering section 214A.
Copying company language such as “final dividend” into an LLP agreement, which has no legal meaning for an LLP and can blur whether profits are divided automatically or at the members’ discretion, which in turn drives the SORP treatment.

Company directors can protect the business against the cost of an HMRC check with tax investigation insurance, which pays up to £100,000 of accountant’s fees with Solar Protect. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.