The salaried member legislation applies to certain members of a Limited Liability Partnership (LLP) whose terms of membership are more like an employee than a partner. To be a salaried member, the individual must perform services for the LLP in their capacity as a member.
The legislation uses a three-part test. If all three conditions apply, the member is classified as a salaried member for tax purposes:
- Condition A – Disguised salary: At least 80% of the member’s pay is fixed, or any variable amounts do not vary in line with the LLP’s overall profits or losses.
- Condition B – Lack of influence: The member has no significant influence over the LLP’s affairs.
- Condition C – Insufficient capital stake: The member’s capital contribution is less than 25% of their expected reward package.
If a member can show that at least one condition does not apply, they continue to be treated as a partner.
The rules do not apply to:
- Companies
- Individuals who do no more than invest money
- Individuals who no longer provide services for the LLP but continue to receive a profit share
HMRC examples illustrate that remuneration linked to overall firm profits, rather than individual performance, does not create a salaried member situation. Professional qualifications or experience are also irrelevant, what counts is the member’s role and risk exposure in the LLP.
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