ESM61105 | Salaried Member: Disguised Salary: Profit share: Tranches of reward

ITTOIA/S863B

This section looks at the position where the profits shares vary with the level of profit made.

Example

This example looks at tranches of reward, where the profit sharing arrangements vary depending on the amounts of profits made.

P works for the UVW LLP. She has no salary, but has a 10% profit share for the first £1m profits, reducing to 5% above that figure. Profits may or may not exceed £1m.

P’s profit share varies by reference to the actual profits. Whilst the percentage varies, it is all profit-related. P does not satisfy Condition A.

Please note that for this example it is assumed that there is practical risk that the LLP makes less than £1m of profits; if not, P will receive Disguised Salary of £100,000 plus a profit share.