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HMRC internal manual

Partnership Manual

Who can be a salaried member?



The salaried member legislation is intended to apply to those members whose terms of membership are more like the terms of an employee than those of a partner in a traditional partnership.


A key point is that to be a salaried member, the individual has to perform services for the LLP in the individual’s capacity as a member.


This means that the salaried member provisions do not apply to:

  • companies
  • individuals who do no more than invest money
  • individuals who no longer perform services for the LLP but who continue to receive a profit share


Example 1

This example illustrates why an LLP member who no longer provides services is not a salaried member.


X used to be an active member of JKL LLP but reduced his active work a number of years ago and has not provided any services to the LLP for a year. In recognition of his contribution to the LLP over his career, X remains a member of the LLP, continuing to receive a profit share.


Although X is still a member of JKL LLP and receives a share of the profits, none of this is due to him in respect of any services he continues to perform. The reason he continues to receive a profit share does not matter, but it may, for example, reflect the fact that X still has capital invested in the LLP. X reports this profit allocation on the partnership pages of his tax return and pays income tax (and Class 2 and 4 NICs) accordingly. This reward is not disguised salary.


Example 2

The following example looks at the case of someone on ‘gardening leave’.


M is a member of the BYBY LLP. He has been approached by, and has accepted, a more senior role with the Hello LLP.

Under the terms of the LLP agreement, M will leave the BYBY LLP in three months’ time. The management board agrees to commute M’s expected profit share into a fixed sum, based on profit projections, and M is placed on ‘gardening leave’ for three months.


The arrangement under which M is receiving the fixed sum does not involve the provision of services, and accordingly, Condition A is not met.


Professional qualifications

The fact that an individual has, or has not got professional qualifications is not relevant to the question as to whether that individual is a salaried member.


Example 3

This example shows that professional qualifications are not relevant to the question whether an individual is a salaried member.


Fifty people currently work for the A LLP, of whom 45 are listed as members.

The A LLP business plan is inclusive, recognising that everyone working for the business is contributing to the success of the business; hence once it is clear that the individual is going to stay with the business, they are invited to become a member.

Of the 45 members, 15 are professionally qualified, 5 of whom qualified in the last 5 years whilst 3 other members are working for their professional qualifications. The remainder have no intention of becoming professionally qualified.


The salaried member test is not concerned with experience or professional qualifications. It looks at the role that individual plays in the business.


Each member receives a profit share. The proportion varies from member to member, but everyone knows that if the business makes less profit they will have less income and if it makes a loss they get nothing.


The variation for each member from year to year is driven by the overall success of the entire business and all the members have exposure to the upside (and downside) of being an owner rather than an employee.


All the members, from a secretary to the founders know that their income from year to year depends on the level of profit. If the firm makes a loss, then they have no income for the year. This means that condition A is not satisfied. No member of the A LLP is a salaried member and no further action is needed.


The fact that the various members draw sums during the year does not change this, provided that the sums are simply drawings in advance of profit shares.


This case should be distinguished from another case where although the remuneration for an individual member may vary from year to year, and this may appear to have some relation to the overall success of the firm, the variation is not driven by the variation in the firm’s profits. Instead the variation for a particular member in this contrasting case largely reflects the personal performance of the different members or that of their wider team. Such a reward is not being varied by reference to the overall profits of the firm and so condition A will be satisfied.