"Salaried" LLP members to be taxed as employees


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Summary: Read this if you advise on setting up LLPs with individual members.From this April some individual LLP members will be treated as employees, subject to PAYE and employer’s and employee’s NICs.

New rules will treat an individual LLP member as an employee if 3 conditions are satisfied:

  1. 80% or more of the what the member is paid by the LLP for performing services is fixed or does not otherwise depend upon the overall profitability of the LLP (such payments are referred to as “disguised salary”);
  2. the member does not have significant influence over the affairs of the LLP; and
  3. the member’s capital contribution is less than 25% of the member’s disguised salary.

If all three conditions are satisfied then all of the payments that the member receives from the LLP in respect of his or services will be treated as employment income with the result that PAYE will be due as well as NICs.

Please select the link to read a note explaining the rules in more detail.

This note has been updated to reflect the revised draft legislation, which was published on 7 March.

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