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HMRC internal manual

Employment Status Manual

Salaried members: global structures: profits from the UK LLP

Where the UK LLP is part of a global structure, the test for condition A is applied to the profit share from the UK LLP.

In some cases, the profit allocation received by a member may be intended to reflect the position of the global structure as a whole, rather than just the UK LLP. For guidance on this see ESM66020.

If the profits of the UK LLP are calculated on a costs plus basis then condition A will be satisfied, see ESM66025.


Example 1 (Condition A)

This example illustrates a firm doing business with an associate overseas (and the effect of the arm’s length principle).

The members of ABC LLP are A, B and Y Ltd, a subsidiary of Swiss Co.

The only customer of ABC LLP is Swiss Co. The profits of ABC LLP are determined on an arm’s length basis reflecting its contribution to the global profits and losses of Swiss Co. As a result, ABC LLP could be profitable when Swiss Co is loss-making or vice versa.

The profits of ABC LLP are allocated to A and B in line with variable profit sharing arrangements within ABC LLP’s LLP agreement.

A and B fail condition A. They share only in the profits of ABC LLP which have been calculated on a normal commercial basis.


Example 2

This example shows that profit shares from other members of the structure are not taken into account.

AA LLP is a UK firm that has set up a business in Australia. AA LLP cannot operate in Australia for legal reasons. Instead, the business in Australia is operated through a general partnership AA GP. The 2 firms work closely together. A, B and C are individuals who are members of both AA LLP and AA GP.

The salaried member legislation looks at the role of the member in the UK body only.

In this case, only the position of the AA LLP and not the AA GP will be considered when deciding whether A, B and C are salaried members.

Depending upon profit levels in the 2 firms, A, B and C may draw profits from either body depending on the relative profits of the 2 firms.

How are the members to be rewarded by the UK LLP?

At the start of the year, the AA LLP must look at the individuals and decide if condition A is going to be satisfied:

A and B work for AA LLP, they each receive a salary of £100,000 plus a proportion of the profits of AA LLP. On the basis of the business plan for the combined operation, they are expected to receive profit shares of £250,000 each from AA LLP; in addition, A is expected to receive £25,000 from AA GP.

Ignoring the share that A expects to receive from AA GP, A and B do not satisfy condition A and are not salaried members.