Payments via Limited Liability Partnerships (LLPs) to ‘salaried’ members or partners
Introduced with effect from 6 April 2014.
A Targeted Anti-Avoidance Rule (TAAR) also seeks to ensure LLPs adhere to the spirit as well as the letter of the new legislation.
What is the measure aimed at?
HMRC considers that LLP members may be engaged on terms that are similar to employees, and that payments are little more than ‘disguised salary’ i.e. arranged as partnership income merely for the purposes of saving employer duties such as NICs.
How does it operate?
PAYE/NIC applies to specified income on which all 3 conditions are met: (A) the member receives remuneration for his/her services which is substantially fixed without reference to the LLPs’ profits, and which is deemed to be ‘disguised salary’, (B) the member does not exert significant influence (e.g. have material voting rights) and (C) the member does not make significant capital investments (amounting to at least 25% of the ‘disguised salary’), in the LLP.
What is the result?
The LLP is deemed to be the employer and must account for PAYE/NIC on the disguised salary.
Is there potential for duties to be transferred elsewhere?
Not envisaged under this legislation, which provides for the LLP to be liable to account for PAYE/NIC as deemed employer for tax and NIC purposes.