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HMRC internal manual

Employment Status Manual

Salaried Members: Global Structures: Costs plus basis

If the profits of the UK LLP are calculated on a “costs plus” basis, then Condition A is satisfied as the level of profits vary with the rewards to the members rather than the members receive a reward that varies with the profits of the LLP.


Example 1

A firm using a costs plus basis is illustrated in the following example.

P and Q are members of P&Q LLP which is a fund manager associated with a US firm. All fund management fees are paid directly to the US firm.

P and Q provide services to the US firm and agree at the end of the year that based on the profits of the US firm, £300,000 will be allocated to P&Q LLP as their remuneration, in addition to an amount equal to the costs of the business of £500,000. The LLP has agreed a ‘costs plus’ basis with HMRC and therefore the profit taxable in the UK will also include an additional £80,000 (i.e. a 10 per cent mark up on costs including the members’ remuneration).

The £300,000 is not in practice variable by reference to the overall amount of the profits of the UK firm because it is set according to the profitability of the associated firm. Therefore it is Disguised Salary. Similarly, the additional £80,000 varies according to the members’ remuneration and other costs, not the profits of P&Q LLP.

P and Q meet Condition A.