Salaried members review
Important change in HMRC’s guidance
The salaried member rules remain an area of interest for HMRC as shown by their reversal of guidance amendments for Condition C, capital test, last year and the increased number of enquires they have raised into firms’ compliance with the legislation.
LLPs are also awaiting the outcome of the Supreme Court case concerning Bluecrest v HMRC heard in January 2026 in relation to condition B of the rules, which will have a significant impact on firms that look for members to fail this test, if the court’s current interpretation of significant influence is upheld.
Given the increased scrutiny, it is vital for firms to have a clear understanding of the salaried member rules and that they document their review annually and as and when required to ensure they remain compliant.
The rules
Members of an LLP should be taxed under PAYE as a salaried member if the following three conditions are all met:
- Condition A: at least 80% of their income is of disguised salary
- Condition B: they do not have significant influence over the affairs of the LLP
- Condition C: their capital is not at least 25% of their disguised salary.
If the answer to at least one of the above tests is 'no', the member should be taxed as a self-employed.
Pass all three tests and the individual is a salaried member to be taxed under PAYE, with the burden of Employers NIC at 15% on the total reward of the salaried member along with potential pension auto-enrolment and administration issues for the LLP.
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 on 6 April, looking at the reward each partner expects to earn for the year to the following 5 April, and compared with the level of capital subscribed to the firm.
Firms should take care to document their salaried member compliance and retest reviews, so they are available when HMRC checks a firm’s compliance with the legislation.
Condition B
The ongoing BlueCrest case centres on how Condition B (significant influence) should be interpreted under the salaried member rules. The Court of Appeal adopted a much narrower test, ruling that influence must come from legally enforceable rights in the LLP agreement, rather than from practical or operational influence alone. A departure from HMRC’s much wider interpretation in its own guidance on the topic.
It also held that influence must relate to the affairs of the LLP as a whole, not just part of the business.
The Upper Tribunal decision was appealed to the Supreme Court in January 2026, with a final judgment awaited.
Condition C
Condition C is failed if a member’s capital contribution is at least 25% of their expected disguised salary.
HMRC accept that genuine, enduring capital contributions that place the member's funds at real risk will be considered when applying the test, even where additional ‘top up’ capital contributions are made periodically.
HMRC now clarifies that real risk means contributions are:
- genuinely at risk of loss should the LLP suffer financial difficulty, and
- the capital is available for general use by the LLP, not ringfenced for the member’s individual benefit.
What other times will you need to retest?
Retests are also required on a variety of other occasions such as:
- when a member joins the firm
- when the firm’s profit share arrangements change
- the management structure changes
For more information, or to discuss the application of the salaried member legislation to your firm’s circumstances, get in touch with your usual Crowe contact.
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