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HMRC internal manual

Employment Status Manual

Condition A: Disguised Salary

ITTOIA/S863B(3) – Step 2

To be a Salaried Member it has to be reasonable to expect that at least 80% of the total amount expected to be payable by the LLP for the individual’s services as a member will be Disguised Salary.

For the purposes of the test, it is the remuneration payable in accordance with the individual’s arrangements with the firm (or the profits for accounts purposes attributed to him or her) which is taken into account, not the amount that would be taxable as a result of the firm’s profit sharing arrangements (if different).

The legislation says that an amount is a Disguised Salary “if it –


(a) is fixed,

(b) if it is variable, is varied without reference to the overall amount of the profits or losses of the limited liability partnership, or

(c) is not, in practice, affected by the overall amount of those profits or losses.”


The overall profits

The legislation refers to amounts that vary or are in practice affected by the overall amounts of profits of the LLP. For this purpose, the overall profits are the profits of the LLP that are available for allocation amongst members (including any amounts which may be reflected in the income statement as members’ salaries).

Disguised Salary

Disguised Salary comprises amounts that will not be affected by the overall profitability of the firm. It includes:


  • a fixed sum such as a salary;
  • payment on a piece work basis - by the number of units produced or jobs done - for further information see ESM61040;
  • payment on the basis of fees generated see ESM61045;
  • a bonus based on a member’s personal performance without reference to the success of the business - for further information see ESM61050;
  • a payment by reference to a division or part of the business - for further information see ESM61060;
  • guaranteed payments - for further information see ESM61065;
  • profit shares that are subject to a cap - for further information see ESM61070; and
  • non-refundable drawings – ESM61075 provides information on when drawings are treated as a Disguised Salary.


Disguised Salary does not include:


  • a share in the overall profits that is affected by the overall profitability of the firm - for further information see ESM61075
  • drawings if it is reasonable to assume that they are sums on account of a separate amount that is not itself Disguised Salary, - for further information see ESM61085; or
  • Benefits in kind and pension contributions, - for further information see ESM61090