Commentary

B7.514 LLPs and salaried members

Business tax
Business tax | Commentary

B7.514 LLPs and salaried members

Business tax | Commentary

B7.514 LLPs and salaried members

The presumption of self-employment is removed for some members of LLPs in order to tackle the disguising of employment relationships through LLPs1. These rules target 'salaried members'—ie those members working for an LLP on terms that are tantamount to employment.

These rules are targeted anti-avoidance provisions, applying to individual members only (not corporates) that perform services for the LLP.

Broadly they ensure that if all of conditions A, B and C are met, an individual member (M) of an LLP is treated as being employed by the LLP under a contract of service instead of being a member of the partnership.

Conditions A, B and C are discussed fully below, but in summary they are as follows:

  1.  

    •     Condition A — there are arrangements in place such that a 'disguised salary' is payable to M in return for his services—a disguised salary is essentially a fixed amount, or an amount that is variable but not by reference to the partnership profits

  2.  

    •     Condition B — M does not have significant influence over the affairs of the partnership (so can be viewed as simply a 'worker')

  3.  

    •     Condition C — M's capital contribution is 25% or less than his annual 'disguised salary' from the partnership

Where these conditions are met, an individual is treated as a salaried member. All amounts received by that individual are treated as employment income subject to the applicable income tax and national insurance rules. A salaried member is subject to the same rules

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