Tax tip: salaried LLP member rules

HMRC introduced rules in 2014 which resulted in some fixed share partners in LLPs being held to be ‘deemed employees’ for PAYE and NIC purposes. The original rules had three tests:

a) The 80% test ie it was reasonable to assume that at least 80% of the individual’s profits were fixed and unrelated to the wider partnership’s profits.

b) The ‘significant influence’ test ie the individual didn’t have significant influence over the running of the wider partnership.

c) That the at-risk capital contribution of the individual to the partnership was less than 25% of their expected fixed share profits (disguised salary).

Traditionally all that was required for the salaried partner rules not to apply was for just one of those conditions to be not ‘in play’. In practice this often meant a focus on ensuring that there was a sufficient capital contribution from the individual...