Baker Tilly

A call for common sense: there are some fundamental concerns about the operation of new tax regime for LLPs

The new regime for taxing members of LLPs is now in force. Although the legislation itself may be modified during its passage through Parliament, LLP members are now taxed as employees unless they can establish that they are ‘true partners’, to quote HM Revenue & Customs (HMRC), by failing any one of three conditions:

  • Condition A — ‘disguised salary’ more than 80 per cent of total profit share
  • Condition B — no significant influence over the affairs of the LLP
  • Condition C — capital less than 25 per cent of ‘disguised salary’

Each of these conditions had to be tested by the LLP and its members by 6 April.

If all three conditions have been met, remuneration payable from that date is subject to PAYE with an attendant hefty national insurance (NI) liability for the firm. LLP members may also suffer a slight increase in their personal NI contributions and possibly an increase in their 2013–14 tax bill as a result of a cessation of their notional trade…

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