This website uses cookies to ensure you get the best experience. Please read our policies for more information.

10 Chartered Accountants


Are you ready for changes to LLP salaried member rules?
10 June 2024

HM Revenue & Customs (HMRC) has issued its updated guidance on salaried members in limited liability partnerships (LLPs), in relation to capital contributions.

Currently, LLPs incorporate elements of both partnerships and limited companies, limiting the liabilities of each partner to the amount of capital they put into the business.

Partners are typically considered to be self-employed owners of the business rather than employees, but LLPs do allow for certain partnership members to be treated as employees – known as salaried members.

Defining employees

In an LLP, salaried members must meet the following conditions:
Targeted anti-avoidance rules (TAAR)

  • At least 80 per cent of the amount payable by the LLP to the individual takes the form of ‘disguised salary’ – not variable or affected by the financial performance of the business.
  • They do not have significant influence over the affairs of the LLP.
  • Their capital contribution is less than 25 per cent of their disguised salary.

The TAAR is designed to stop individuals from intentionally avoiding classification as a salaried member.

The rule states that: “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.”

This means that, when determining if someone should be considered a salaried member, any plans or agreements that are set up primarily to prevent that classification will not be considered. This ensures that the decision is based on the actual job conditions and responsibilities.

What has changed?

HMRC has updated its guidance on salaried members, particularly concerning the alteration of capital contributions.

Members of a partnership may try to change their individual capital contributions to ensure they do not exceed the limit of 25 per cent of disguised salary.

For example, if an individual’s expected disguised salary rises, they may contribute additional capital to avoid being classed as a salaried member.

However, updated rules state that the TAAR can still be applied even when avoidance measures constitute a genuine contribution to the partnership by the individual.

In this case, the additional capital would not be counted, and the individual could be classed as a salaried member.

Why is this important?

Whether an individual is classed as a partner in an LLP, or a salaried member determines how their income will be taxed.

An employee will be taxed via PAYE and the partnership must pay Class 1 employers National Insurance.

By contrast, a partner must report their income via Income Tax Self-Assessment (ITSA) and is responsible for the payment of tax on any income earned via the partnership.

We can advise you on structuring your business in a tax-efficient way while remaining compliant with the latest legislation. For further support, contact a member of our team.

Other recent news

Are you ready for changes to LLP salaried member rules?
10 June 2024

HM Revenue & Customs (HMRC) has issued its updated guidance…
Read more

New accounting practices outlined for LLPs
10 June 2024

The Consultative Committee of Accountancy Bodies (CCAB) has released the…
Read more

Using an iPhone? Keep an eye out for tax refund scammers
10 June 2024

HM Revenue & Customs (HMRC) has warned that a new…
Read more

The increase to Companies House fees: What you need to know
10 June 2024

As of 1st May 2024, Companies House has implemented revised…
Read more

New advisory fuel rates for electric company cars
10 June 2024

HM Revenue & Customs (HMRC) has recently announced new Advisory…
Read more


Case Studies