LLP’s members may need to go on the payroll

Yet another attack on the use of LLPs concerns the employment status of certain members. Up until 6 April 2014 a member of a LLP was always treated as self-employed for tax purposes, however some members may now be treated as employees.

This proposal was also consulted on last summer but legislation in the latest Finance Bill goes much further than what was originally proposed. Where the following conditions are satisfied the member is now treated as an employee:

A) His or her profit share is essentially fixed or less than 20% is based on the profitability of the LLP as a whole
B) He or she does not have a significant influence over the running of the LLP
C) His or her capital contribution is less than 25% of the “disguised remuneration”.

Condition A could catch a member whose profit share is based on his personal performance or the profits of a department or office, not the firm as a whole. Condition B may catch members of larger LLP’s where the firm is effectively run by a separate management committee.

If the member is caught by Conditions A and B and is being allocated a profit share of £100,000 then they would need to contribute at least £25,000 in members capital and long term loans to the LLP otherwise they would need to go on the payroll.