LLP Salaried Member rules

Headlines 

• HMRC have U-turned on previously amended condition C guidance, now stating that top up contributions will not be disregarded for the purposes of the condition C test.
• The Court of Appeal have ruled that 'significant influence' (condition B test) has a narrower definition than previously determined by the lower courts and HMRC.
• HMRC enquiries into salaried members compliance have increased over the last year, with the “Re-test” date for many professional firms approaching in the coming months, it will be important for firms to adequately document their compliance with the rules. 

'Top Up' Capital Contributions - Condition C

HMRC has confirmed that the previously amended guidance (Salaried members review | Crowe UK), relating to top up capital contributions being disregarded will be repealed. This will be positive news for many LLPs who look to this condition for members not to be treated as disguised employees.

HMRC is in the process of issuing revised guidance in relation to this point, but firms can take some comfort that where a member makes additional capital contributions to a firm, which is enduring and at real risk, these will be considered in applying the test and whether member’s capital is at least 25% of their disguised salary. 

'Significant Influence' - Condition B

On the 17th January 2025 The Court of Appeal delivered its verdict on the BlueCrest salaried members case. The decision will have a major impact on any LLP whose members rely solely on Condition B 'significant influence' to not be treated as disguised employees. 

Contrary to the lower courts decisions the Court of Appeal stated that significant influence should be determined by what is stated in the partnership agreement and constitutional documents rather than a more generic influence over the affairs of the business as a whole, with a greater weighting placed on strategic level decisions. This is a much stricter analysis than current HMRC guidance and market practice.

Re-tests and next steps

The level of scrutiny regarding the salaried member rules has increased over the last year, with HMRC raising numerous enquiries. It is vital that LLPs adequately document their compliance with the rules. 

The deadline for re-testing Condition A (disguised salary test) will be within the next few months for most firms and the relevant dates for Condition C (capital test) are 6 April 2025 as well as the firm’s year-end date.

As a reminder, and now with a greater degree of comfort following HMRC’s U-turn, any existing member who might need to subscribe additional capital to meet the Condition C test will need to have done so before the test date. There is no period of grace for existing members, unlike for new members who must commit to subscribing their capital when they join and actually subscribe the capital within two months of joining.

Where a firm is relying on Condition B, it should review its position given the latest tribunal findings, particularly relating to the 'influence' enshrined in its LLP agreement.

If you would like to discuss the above further, please speak to one of Crowe’s professional practice specialists. For a reminder of the rules in respect of salaried members please see our previous briefings Salaried member review retests | Crowe UK