Glossary · UK
What is Salaried Members Rules (LLP)?
Tax rules that treat an LLP member as an employee for tax purposes (Income Tax and NI via PAYE) unless they fail at least one of three statutory conditions on profit-sharing, influence and capital.
Full Definition
The salaried members rules, introduced in 2014, determine whether a member of a Limited Liability Partnership (LLP) is taxed as genuinely self-employed (the normal position for LLP members) or as an employee, subject to PAYE Income Tax and Class 1 National Insurance. A member is treated as an employee ('salaried') unless at least one of three conditions is met: Condition A fails if less than 20% of the member's expected remuneration varies with the overall profits or performance of the LLP (broadly, if 80% or more is effectively a fixed salary); Condition B fails if the member does not have significant influence over the affairs of the LLP as a whole; and Condition C fails if the member's capital contribution to the LLP is less than 25% of the fixed remuneration they expect to receive in the tax year. The rules were introduced to stop LLPs being used simply to convert what is functionally an employment relationship into self-employed status to save on employer National Insurance, and are a key consideration whenever a professional services firm (such as an accountancy or law firm) admits junior members to its LLP structure.