The salaried members rules are an anti-avoidance measure designed to prevent limited liability partnerships (LLPs) from disguising remuneration paid to members as profit share instead of employment income.
If the rules are triggered, the member’s earnings are subject to PAYE and national insurance as though they were an employee. A member of an LLP is deemed to be an employee under these rules if the following three conditions are all met:
Condition A: it is reasonable to expect that at least 80% of their remuneration will be a fixed or variable salary that is not dependant on the profits or losses of the LLP;
Condition B: they do not have significant influence over the affairs of the LLP; and
Condition C: their capital contribution to the LLP is less than 25% of their expected salary.
In February 2024 HMRC updated its guidance in regard to Condition C to suggest that the anti-avoidance rules could be invoked if a main purpose of the capital contribution was to keep the member outside of the salaried members rules.
Reversing this somewhat controversial amendment, HMRC has changed the guidance again, accepting that a genuine contribution made by a member, intended to be enduring and giving rise to real risk, will not trigger the anti-avoidance rules. As long as the member puts in at least 25% of the amount they plan to take out, they can continue to be taxed as self-employed on their profit share if their capital contribution is genuine.
We would advise all LLPs to review their profit share and capital contribution arrangements to ensure compliance with the salaried members rules. We can help you with this.
