Deemed employees of LLPs
Some businesses operate through Limited Liability Partnerships (LLPs) so the workers can be paid without incurring PAYE and NIC costs. This only applies if the worker is designated as a member or partner of the LLP, and thus is treated as self-employed for tax purposes.
The taxman has wised up to this scheme, so the law will be changed in April to tax LLP members as employees where all of these conditions are met:
- The individual performs services for the LLP and 80% or more of his payments from the LLP are 'disguised salary'.
- The individual's capital commitment to the LLP is less than 25% of the disguised salary which he is expected to receive in the tax year.
- The individual has no significant influence over the affairs of the LLP.
'Disguised salary' is a fixed or variable payment which is not calculated by reference to the profits or losses of the whole LLP business (not just a branch or division).
These tests could be met where the member draws a fixed amount from the LLP, has a low capital commitment and has little or no involvement in the management of the LLP. If you have members in your LLP which fit this description, you may have to apply PAYE and NICs to their drawings with effect from 6 April 2014. That will be expensive.
Let’s discuss the alternatives. Perhaps you can make some simple changes to the LLP’s management or reward structures to avoid at least one of the above tests applying. This will mean taking action before April. Don’t delay – call us.