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HMRC internal manual

Employment Status Manual

Salaried Member: Condition C: A reduction in the contribution

Where the capital contribution is reduced, Condition C will need to be re-determined.

The general rule will apply.


*Example *

This example illustrates how the test is applied when the capital contribution is reduced.

A is a member of the ABC LLP. At the start of the tax year, Condition C is not met as A has Disguised Salary of £450,000 and has made a capital contribution of £120,000 in accordance with the LLP Agreement. Therefore, A’s contribution is more than 25% of his Disguised Salary.

Circumstances change and the members agree that A can reduce his capital contribution to £40,000 to enable him to fund a divorce settlement.

Condition C needs to be re-determined as there has been a change in A’s capital contribution.

A now has a capital contribution of less than 25% of his Disguised Salary

((£40,000/£450,000) x 100 = 8.8%). Condition C is now satisfied. Whether A is now a Salaried Member will depend upon whether he satisfies Conditions A and B.