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Are You Prepared for the New LLP Salaried Member Regulations?

HM Revenue & Customs (HMRC) has released the updated guidance on salaried members in limited liability partnerships (LLPs), particularly concerning capital contributions.

LLPs merge aspects of both partnerships and limited companies, with each partner’s liability capped at the amount of capital they have invested. While partners are generally considered self-employed owners rather than employees, LLPs can designate certain members as salaried employees.

How are employees defined in an LLP?

For an individual to be classified as a salaried member within an LLP, the following conditions must be met:

What you need to know about targeted anti-avoidance rules (TAAR)

The TAAR aims to prevent individuals from deliberately avoiding salaried member classification.

According to the rule, “In deciding whether an individual is a salaried member, no regard is to be had to any arrangements the main purpose, or one of the main purposes of which, is to secure that the individual (or that individual and other individuals) is not a salaried member.”

This means that when assessing someone’s status as a salaried member, any schemes designed to avoid this classification will be ignored ensuring that the decision is based on the actual job conditions and responsibilities.

So, what’s changed?

HMRC has revised its guidance on salaried members, focusing on changes to capital contributions.

Partnership members might attempt to adjust their capital contributions in order to stay below the 25 per cent threshold of disguised salary.

However, the updated rules state that the TAAR can still be enforced even if these avoidance tactics involve a genuine capital contribution.

The extra capital will not be considered in this case, and the individual may still be classified as a salaried member.

How somebody is taxed will depend on whether they are determined a partner or a salaried member in an LLP.

For instance, an employee will be taxed via PAYE, while the partnership would be required to pay Class 1 employers National Insurance.

Partners are accountable for paying taxes on their earnings from the partnership and need to declare their income through Income Tax Self-Assessment (ITSA).

If you need support with legislation compliance or need assistance with your business tax efficiency, our expert team are on hand to help. Get in touch today.


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