New LLP tax rules to come into force on 6 April

The new rules for salaried members of UK limited liability partnerships will apply from 6 April 2014, HM Revenue & Customs has confirmed.

In its revised technical note and guidance, HMRC has made amendments to each of the conditions for determining whether a member is an employee.

Members who receive at least 80 per cent of their remuneration through "disguised salary", who do not have "significant influence" over the partnership and whose contribution to the LLP is less than 25 per cent of their disguised salary, are deemed to be employed.

In the note, HMRC said that "members who are 'true' partners carrying on the business are unaffected by the new rules".

HMRC went on: "Addressing inconsistencies ensures that limited liability partnership members who are, in effect, providing services on terms similar to employment are treated as 'employees' for tax purposes.

George Bull (pictured), chair of the professional practices group at Baker Tilly said the revised guidance notes represented a "modest step in the right direction".

Bull pointed to the "small but significant changes" that had been made to the technical note and guidance document.

Under 'Condition A' on disguised salary, he said the HMRC had provided a statutory definition of "wholly and substantially", providing greater certainty for firms and members.

Other clarifications include "sensible confirmation that drawings on account of an eventual profit share will not of themselves be treated as a fixed profit share as they will be later tallied up with the actual profits."

Under 'Condition C' on capital contributions, firms will now have more time to put partner contributions in place.

Commented Bull: "With banks and professional firms alike maintaining that it would be impossible to reorganise every firm's finances such that all members had the requisite amount of capital in place by 6 April 2014, HMRC is offering a relaxation: in determining whether Condition C is met, a firm commitment in place by 6 April 2014 to contribute capital within three months will be taken into account."

Greater clarification is provided in the note as to HMRC's expectations if members' income is subject to pay-as-you-earn tax and national insurance contributions. The notes now cover pay, benefits in kind, statutory payments, statutory maternity pay, statutory sick pay, statutory adoption pay and statutory paternity pay.

"These are relevant because, if a member is taxed as an employee, the LLP will be secondary contributor for NICs," said Bull.

Associated changes to the national insurance contributions legislation are being made under the National Insurance Contributions Bill 2013.

"The notes appear to be silent on student loan repayments and pensions auto-enrolment, suggesting that it is not intended that these will apply. If not explicitly covered in the notes, further confirmation may be required as slip-ups in these areas could cause considerably difficulty for the members."