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HMRC is looking to close what it considers to be a number of tax loopholes relating to fixed shared partners in limited liability partnerships (LLPs).

Fixed share partners or members are currently classed as self employed, which means that they pay a lower rate of national insurance contributions. HMRC is proposing to treat fixed shared partners as if they are employees for tax and NIC purposes if they work on terms that are 'tantamount to employment'. This means that, in order to avoid employee status, fixed share partners are going to have to fail one of the following three tests:

  • At least 80% of their remuneration is fixed or, if variable, the variable element does not relate to the profits of the firm as a whole. The total of their remuneration that is not a share of the variable profit of the firm is their ‘disguised salary’ (see third point below)
  • The individual member does not directly have significant influence over the affairs of the LLP
  • The individual’s capital is less than 25% of their annual disguised salary.

As a consequence of the above, a number of LLPs have already called upon their fixed share partners to pay in a larger capital contribution.

One might wonder why LLPs are getting so excited about these changes. However the changes to NIC rates is just one issue. Lots of LLPs currently deduct tax from fixed share members' drawings and then use it as business capital. If LLPs are required to treat fixed share partners as if they are employees, then they will also have to operate PAYE.

This will clearly impact on solicitors firms, but will also impact on other professional service companies such as accountants and insolvency practitioners.

Sarah Rushton (

Tel: 0207 539 4147

This is intended for general information only and should not be considered as giving advice in relation to any individual case nor be taken as applying to any particular case. No liability is accepted for any such use of the information.


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