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HMRC internal manual

Employment Status Manual

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Salaried Member: Condition C: Deemed contributions

ITTOIA/S863F

In order to make a capital contribution, many members of LLPs borrow money. Obtaining the loan may take time.

To avoid the position where individuals are treated as employees for tax purposes for a short period whilst they obtain finance in order to invest capital, the legislation provides a transitional easement.

This applies where:

  • the member has given an undertaking (whether or not legally enforceable) to provide a capital contribution to the LLP (but has not made the contribution);

and

  • the undertaking requires the member to make the contribution by:

  • 5 July 2014 if the individual is a member at 6 April 2014, or

  • the later of 5 July 2014 and two months after the date on which the individual becomes a member, if the individual joins the LLP after 6 April 2014.

 

If these requirements are satisfied, the amount undertaken to be provided is treated as if it is an actual contribution made on the date the undertaking is given for the purposes of determining whether or not Condition C is met.

The actual making of all or part of the contribution is ignored, meaning that the test needs not be re-determined, provided it is made within the period as undertaken.

 

*Example *

This example shows how the “Deemed Contribution” rule works where the contribution is in fact made.

M is an existing member of an LLP at 6 April 2014 who has not previously contributed capital to the LLP. On 5 April 2014, M gives an undertaking to the LLP that he will make a contribution of £50,000 by 5 July 2014.

The question of whether Condition C is met is determined on 6 April 2014 and takes into account the deemed contribution of £50,000 resulting in Condition C not being met. On 30 June 2014, M contributes £50,000 to the LLP. This contribution does not trigger a re-determination and Condition C is treated as not met until the end of the 2014/15 tax year or unless there is a later change that requires a re-determination.

For guidance on the position if the contribution is not made within the time period, see ESM63050