Do Limited Liability Partnerships (LLPs) qualify for R&D tax credits?

Can a partnership claim R&D tax credits? The straightforward answer is no. But, why?

Limited Liability Partnerships (LLPs) cannot directly claim R&D tax credit relief because they are not subject to UK Corporation Tax. R&D tax credits operate as a form of Corporation Tax relief, which means the claimant must be a company that is liable for Corporation Tax.

LLPs are generally treated as transparent for tax purposes. The partnership itself does not pay Corporation Tax. Instead, the profits and losses are allocated to the individual partners, who are then taxed based on their own tax position.

This distinction is important when R&D activity is carried out within an Limited Liability Partnerships structure. If the partners are individuals, the expenditure does not fall within the scope of the R&D tax relief scheme. The relief is only available where a corporate entity has qualifying expenditure as part of its trade.

In some cases, an LLP may have corporate partners that are subject to Corporation Tax. In scenarios like this, those corporate partners may be able to claim R&D tax relief on their share of the qualifying R&D expenditure, provided the eligibility criteria are met. This includes demonstrating that the activity sought to resolve technical uncertainty and that the relevant expenditure relates to qualifying R&D work.

As with any claim, clear records linking the qualifying activity to the expenditure allocated to the corporate partner are important.