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HMRC internal manual

Employment Status Manual

HM Revenue & Customs
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Salaried Members: Global Structures: Condition A: Global profits

In some cases, it may be intended that the members of a global business are to be rewarded on the basis of global profits (this reward will reflect the contribution of local offices to the generation of those profits).

Those global profits may be the aggregate of the profits of the UK LLP plus profits earned outside the UK from a related (so-called parallel) partnership. The parallel partnership may exist because the laws of the relevant foreign territory will not permit the LLP to operate there.

To ensure that profits can flow between the LLP and foreign partnership, there will be at least one member common to each entity (sometimes referred to as a “valve partner”): this member may draw out profits from the foreign partnership to top up the payments to be made to the members of the UK LLP (or may receive additional amounts from the UK partnership to top up the valve partner’s profit share). Amounts received from the UK LLP will fail Condition A if they are variable by reference to the profits of the UK LLP.

It should be noted that this guidance only relates to the treatment of amounts under the rules relating to treatment of Salaried Members. The tax position of this kind of arrangement generally involves other issues which are not covered in this guidance.



This example shows that where the size of the global profit cake varies by reference to the UK LLP’s profits, then the reward derived by the members of the UK LLP may still be affected by the level of the UK LLP’s profits.


Z is an Australian law firm with an LLP “subsidiary” operating in London, which is highly profitable. Z LLP cannot operate directly in Australia for legal reasons.

Instead, the business in Australia is operated through a general partnership Z GP.

The two firms work closely together and the members of the Z LLP are to be rewarded by reference to the global profits of Z (including the LLP).

There is a member Y who is a member of both Z LLP and Z GP whose role is to act as valve partner.

The UK profits are expected to be a sizable proportion of the global profit, but it is highly likely that the valve partner (Y) will be used to transfer profits from the Z LLP to Z GP in Australia.

The members of Z LLP fail Condition A because:

  • their reward for services is not a fixed sum;
  • their reward for services is affected by the amount of the UK profits (even though it is also affected by the profits of Z in Australia); and
  • their reward will in practice be affected by the amount of the Z LLP profits.