HMRC is launching a mailshot campaign reminding LLPs of the salaried member legislation and recommending that firms review their compliance with this (and of course encouraging disclosure of non-compliance situations).
As a reminder, the salaried member tests need retesting at least annually.
Members of an LLP should be taxed under PAYE as a salaried member unless they fail one of the following tests:
If the answer to at least one of the above tests is 'no', the member should be taxed as a self-employed partner.
Conditions A and C are forward-looking based on reasonable expectation.
Condition A should be tested at the start of the firm’s profit-sharing period, which HMRC expects to be the financial year for most firms. The test looks at the reward each partner expects to earn for the profit-sharing period, and the extent to which it is disguised salary.
Condition C should be tested at 6 April, looking at the reward each partner expects to earn for the year to 5 April following, and compares this with the level of capital subscribed to the firm.
Retests are also required on a variety of other occasions, including when a member joins the firm, when the firm’s profit share arrangements change, the management structure changes and when a member’s status changes.
An amount is Disguised Salary if it is:
Firms should take care to document their salaried member retest reviews so they are available for when HMRC checks how the firm has ensured compliance with the legislation.
Contact us to discuss the application of the salaried member legislation to your firm’s circumstances.