LLP law is changing but the LLPs don’t seem to know

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By Daniel Isaac

LLP law is changing but the LLPs don’t seem to know. Well, the legal and accountancy LLPs know, but I am not convinced that word has reached all their clients. Over the past month, I have reviewed documents for several prospective members of LLPs that fall foul of HMRC’s new rules on employees disguised as partners. As I have said in previous blog posts, it is highly questionable whether many members of LLPs should be treated as partners or employees. To date, both HMRC and the employment tribunals have allowed members to be treated as self-employed despite their having minimal or no exposure to the profits and loss of the LLP, small capital investments and little or no control over how the LLP is run. This has allowed many LLPs to save huge amounts of employers’ national insurance contributions by recasting high-earning employees as members of the LLP.

All this will change from 6 April 2014. Members will be taxed as employed if less than 20 per cent of their remuneration is linked to the overall profitability of the LLP, their capital contribution is less than 25 per cent of their fixed income and they lack significant influence over how the business is run.

Judging by the draft contracts I have seen being produced (in the financial services sector), not a lot of people have cottoned on to this and some LLPs and their members may be in for a nasty surprise in the 2014–15 tax year…

Click on the link below to read the rest of the Withers briefing.