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HMRC internal manual

Employment Status Manual

HM Revenue & Customs
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Salaried Members: Overview

The Salaried Member provisions are intended to apply to those members of LLPs who are more like employees than partners in a traditional partnership.

Corporate members and members who do not work for the LLP cannot be Salaried Members. Guidance on this point is at ESM60020.

The Salaried Members legislation applies to the rewards received by the member as member of that LLP. It does not apply to payments received in another capacity. For guidance on this see ESM60025.

The starting point is to look at the terms and conditions for that particular member, as set out the LLP Agreement including any personal terms agreed. Guidance on what constitutes the LLP Agreement can be found in the Business Income Manual at BIM82112.

The Salaried Member legislation sets out three conditions, A, B & C. An individual member of an LLP is treated as a Salaried Member with the income tax and NICs treatment applying as they would to an ordinary employee only if all three conditions are all met.

The LLP is a flexible business model, which means that there is a lot of variation in how they are organised. It is recognised that as a result some of the Conditions may appear not to be appropriate for a particular LLP.

The Conditions are intended to take into account the wide variety of circumstances applicable to particular LLPs whilst minimising any risks of unintended effects. The key is that it is only if all three conditions are met that the individual will be treated as a Salaried Member.

Condition A

Condition A is intended to identify those members who are working for the LLP and are rewarded like employees; that is, they are paid for their services substantially without reference to the overall profitability of the firm. In terms of the legislation they receive a “disguised salary”.

To express this in another way, these members receive a reward that is closer to the salary - and, potentially, performance linked bonus - paid to an employee rather than representing a share of the overall profits of the business as they vary from year to year (which is the nature of the return flowing to a business owner).

This test is applied “looking forward” on the basis of the arrangements in force at the time that it is being determined whether the Condition is met.

The disguised salary includes any reward for services determined without reference to the profits of the LLP.

The disguised salary includes any variable amounts that, for practical purposes, are highly unlikely to be affected by the profits of the LLP.

In some cases, LLPs pay their fixed share members though a “fixed profit share”. For example, a number of junior LLP members each have a fixed profit share of £75,000 per annum. This fixed share is the first charge against profits. Based on historical and projected performance, this aggregate entitlement is a small percentage of the firm’s overall profits.

The amount is not a fixed amount because, if the LLP makes insufficient profits, the junior members would receive less than £75,000. However, on the facts, absent a catastrophic event, the junior members will receive £75,000. It is therefore reasonable to expect that they will obtain a reward which will not in practice be affected by the overall level of profits.

It should be noted that payments made on account of an expected profit share are not Disguised Salary. These sums are only contingently paid and will later be tallied with actual profits (so as to give rise either to a right to further profit or a debt owed to the firm). In such a case, the reward for services is a profit share (with the drawings being the means by which the profit is accessed).

For guidance on Condition A see ESM61000.

Condition B

This condition is met if the mutual rights and duties of the members and the LLP do not give the individual significant influence over the affairs of the LLP. Here, the legislation is referring to those individuals who do not have significant influence, that is those that merely work in the business rather than carry it on.

Examples of those who do have a significant influence include those who are involved in the management of the business as a whole, or senior members of a firm who may have little interest in day-to-day management which they leave to others but their roles and rights mean that they can exert significant influence over the strategic direction of the business as a whole.

For guidance on Condition B see ESM62000.

Condition C

This condition is met if the individual’s capital contribution to the LLP is less than 25% of the Disguised Salary which, it is reasonable to expect, will be payable in a relevant tax year in respect of individual’s performance of services for the LLP.

The capital contribution made by any member is likely to be well documented.

When a member joins the LLP, the test is on the basis of the capital that they have committed to contribute.

  • For individuals who are members at 6 April 2014, an undertaking (whether or not legally enforceable) in place by 6 April 2014 to contribute capital within three months will be taken into account in determining whether Condition C is met.
  • Where an individual becomes a member on or after 6 April 2014, a two-month period will be allowed to provide the capital, again subject to there being an undertaking to contribute the capital from the day of becoming a member.

The proposals above are intended to ensure that members are not subject to PAYE for short periods of time while they arrange the necessary finance to make a contribution.

For guidance on Condition C see ESM63000.


The Salaried Member legislation contains provisions that are intended to prevent people using artificial structures or arrangements to place members outside the scope of the Salaried Member provisions.

The provisions also act to prevent the Salaried Member provisions being used to avoid the mixed membership partnership legislation.

Guidance on the anti-avoidance provisions can be found at ESM64000.

Implementation matters:

When an individual becomes a Salaried Member, there are implications for how returns are completed.

Although a Salaried Member rather than a member treated as self-employed, the individual may still be able to claim relief on loans taken out to invest in the LLP.

Guidance on this and other matters can be found at ESM65000.

Global Structures:

Some LLPs are part of Global Structures. The guidance at ESM66000 looks at some of the issues that have been raised.