Salaried members of LLPs

Produced by Tolley in association with Jackie Barker of Wells Associates

The following Owner-Managed Businesses guidance note Produced by Tolley in association with Jackie Barker of Wells Associates provides comprehensive and up to date tax information covering:

  • Salaried members of LLPs
  • Salaried members of LLPs
  • When the conditions are tested
  • Condition A ― ‘disguised salary’
  • When is condition A applied?
  • How is condition A tested?
  • Disguised salary
  • Condition B ― ‘significant influence’
  • When is condition B tested?
  • How is condition B tested?
  • More...

Salaried members of LLPs

Where the ‘salaried members’ rules apply, they bring a member of an LLP within payroll immediately. Therefore, members caught by this rule may be liable for PAYE.

For information on salaried members, Simon’s Taxes B7.514.

For review of Charles Tyrwhitt a tax case in this area see ‘Analysis - Tyrwhitt: when employees become partners’ by Dominic Stuttaford in Tax Journal, Issue 1498, 20 (31 July 2020)

Salaried members of LLPs

The ‘salaried members’ legislation affects LLP members who receive earnings which are more akin to salary than genuine profit.

If the three conditions for salaried members are met, an individual member of an LLP is to be treated as an employee by the LLP for tax purposes only. All rights and duties as a member of the LLP are to be treated as if they were agreed under a contract of service.

This means that shares of profit will be treated as salary subject to income tax and Class 1 NIC paid through PAYE. Also, any costs or assets which are made available personally to the member will be treated as benefits in kind.

The legislation has no bearing on whether a member might be considered to be an employee as a matter of employment law.

The member must be an individual and the services provided to the LLP must be done so as part of their rights and duties of membership. If payments are made to the member in a capacity other than as a member, they are not subject to the salaried member rules unless they fall within the anti-avoidance rules.

The three salaried member conditions are given in ITTOIA 2005, ss 863B–863D:

  1. A)

    it is reasonable to expect that at least 80% of a member’s share of profit is ‘disguised salary’

  2. B)

    the individual does not have ‘significant influence’ over the affairs of the LLP

  3. C)

    the individual’s capital contribution is less than 25% of the amount of the disguised salary, it is reasonable to expect the

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