New accounting practices outlined for LLPs

The Consultative Committee of Accountancy Bodies (CCAB) has released the 2024 edition of its Statement of Recommended Practice Accounting (SORP) for Limited Liability Partnerships (LLPs).

CCAB is appointed by the Financial Reporting Council (FRC) to oversee the SORP for LLPs, ensuring that such businesses can present financial statements and accounts similar to those of other businesses, such as limited companies.

LLPs can present a challenge as they incorporate elements of limited companies and general partnerships.

Partners bear financial responsibility for the business, but only up to the value of the capital that they have contributed.

For this reason, CCAB regularly issues updated guidance for accounting rules for LLPs – with new rules applying to accounting periods (APs) beginning from 1 July 2024.

Remuneration changes

The most recent changes include guidance on sharing group profits and post-retirement payments for partnership members.

The latest SORP for LLPs dictates that, where an LLP has members who provide capital to the business, but where some do not provide ‘substantive services’ to the business, the automatic right to a share of the LLP’s profits should be treated as a return on capital – i.e. a share in future profits of the LLP.

Additionally, the SORP confirms that, if a former member is classed as an employee, post-retirement payments are covered by Section 28 of FRS 102.

It further outlines that LLP obligations towards members post-retirement are covered by FRS 102 and 103, including:

• Insurance contracts – Contracts which carry varying liability, for example when the total amount payable by the LLP is significantly affected by the longevity of the retiree.
• Share-based payments – Where a contractual obligation meets the definition of a share-based payment, this will fall in the scope of Section 26. For example, a retiree with an equity interest in the business may be entitled to a specific percentage of disposal proceeds if the LLP is sold.

Reporting requirements

With regard to financial reporting, new disclosure requirements have been included in the latest SORP, particularly for notes to the accounts, which must include:

• A decision on where loans and debts due to members sit concerning other unsecured creditors in the event of a winding-up petition
• Protections afforded to creditors which cannot be revoked by members
• The amount of debts owed to the LLP by members
• Policies which relate to members contributing funds to the LLP and to repayments by the LLP

LLPs must also detail their policy for drawings on account and divisions of profit.

For further advice on accounting rules for LLPs, contact our team today to discuss your needs.