PM255605 | Introduction

ITTOIA/S863B(3) – Step 2

To be a Salaried Member it has to be reasonable to expect that at least 80% of the total amount expected to be payable by the LLP for the individual’s services as a member will be Disguised Salary.

For the purposes of the test, it is the remuneration payable in accordance with the individual’s arrangements with the firm (or the profits for accounts purposes attributed to him or her) which is taken into account, not the amount that would be taxable as a result of the firm’s profit sharing arrangements (if different).

The legislation says that an amount is a Disguised Salary “if it –

(a) is fixed,

(b) if it is variable, is varied without reference to the overall amount of the profits or losses of the limited liability partnership, or

(c) is not, in practice, affected by the overall amount of those profits or losses.”

The overall profits

The legislation refers to amounts that vary or are in practice affected by the overall amounts of profits of the LLP. For this purpose, the overall profits are the profits of the LLP that are available for allocation amongst members (including any amounts which may be reflected in the income statement as members’ salaries).