LLP salaried member tax changes

From 6 April 2014, new taxation rules will be in effect, according to which some LLP members who have been taxed as self-employed will now taxed be as if they are employees. Both the affected LLPs and their members will have to pay national insurance as if the affected members were employed by the LLPs.

Under the new provisions, any member who meets all three of the following conditions will be regarded as an employee:

  • Condition A: It is reasonable to expect that at least 80% of the member's pay is fixed, or if variable, then without reference to, or in practice unaffected by, the LLP's overall profit or loss
  • Condition B: The member has no significant influence over the affairs of the LLP
  • Condition C: The member's contribution to the LLP is less than 25% of the disguised salary

It's likely that in most cases, only senior partners will be regarded as having 'significant influence' over the affairs of the LLP. It is therefore important for everyone to be aware of these changes as it is likely to be conditions A and C that may be, or may become, not satisfied.

This practice note is the Law Society’s view of good practice in this area, and is not legal advice. For more information see the legal status.