Autumn Statement 2013 - more detail for Limited Liability Partnerships

We recently published our Autumn Statement summary that was written immediately after the Chancellor had given his Statement. 

Now that draft legislation has been published, we are pleased to provide more detail on specific areas that we thought our clients and contacts might find helpful.

Members of Limited Liability Partnerships (LLPs)

Since their introduction in 2000, LLPs have become increasingly popular as a vehicle for carrying on a wide variety of businesses. The LLP is a unique entity as it combines limited liability for its members with the tax treatment of a traditional partnership. Individual members are deemed to be self-employed and are taxed as such on their respective profit shares.

The Government now considers that deemed self-employed status is not appropriate in some cases. For example, individuals who would normally be regarded as employees in high-salaried professional areas such as the legal and financial services sectors are benefitting from self-employed status for tax purposes which leads to a loss of employment taxes payable.

The new rules will apply at any time when an individual (M) is a member of an LLP and three conditions are met. The conditions are:

  • There are arrangements in place under which M is to perform services for the LLP, in M’s capacity as a member, and it would be reasonable to expect that the amounts payable by the LLP in respect of M’s performance of those services will be wholly, or substantially wholly, disguised salary. An amount is disguised salary if it is fixed or, if is variable, it is varied without reference to the overall profits of the LLP. 
  • The mutual rights and duties of the members and the LLP and its members do not give M significant influence over the affairs of the LLP.
  • M’s contribution to the LLP is less than 25% of the disguised salary. M’s contribution is defined (broadly) as the amount of capital which the individual has contributed to the LLP.

The new regime will have effect from 6 April 2014.