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HMRC internal manual

Employment Status Manual

Salaried Members: Anti-Avoidance: becoming a member


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.

In applying this test (Targeted Anti-avoidance Rule (TAAR)), HMRC will take into account the policy intention underlying the legislation, which is to provide a series of tests that collectively encapsulate what it means to be operating in a typical partnership.

A genuine and long-term restructuring that causes an individual to fail one or more of the conditions is not contrary to this policy aim.


*Example *

This example looks at junior members and how one member makes the transition to a more senior position.

The XYZ LLP typically has about 100 members.

Existing employees can be invited to become junior members. As a junior member, they initially introduce £4,000 as capital and receive “4 units”. The unit is the measure by which residual profits are allocated. As a comparison, the senior partner has 150 units.

The term “unit” is not material; it is simply the method of allocating the residual profits.

Junior members are awarded a fixed guaranteed profit share, plus the profit from their units. For a junior member, the profit share under the unit system will be no more than 5% to 10% of the total package.

The firm’s management power is centralised in a management board formed by the senior members.

The junior members satisfy all three conditions, they have less than 10% of their reward package as a variable profit share, nominal capital only and no real say.

Catherine has been a junior member but is being promoted. She will sit on the management board and have a significant influence over the running of the business. In addition, she will receive more units but it is still reasonable to expect that less than 20% of her reward package will be variable.

Catherine has accepted an opportunity to participate in the business in much the same way as a senior member, even if, as a relatively junior member, she is still substantially rewarded by a fixed profit share. Catherine would still satisfy Condition A but she is not a Salaried Member as she now does not satisfy Condition B.

This is a genuine change in the terms and conditions, the TAAR does not apply.