For any existing member of an LLP who is at risk of being newly categorised as a “salaried member” and who wishes to retain self-employed status, it is essential that they contribute the required amount of capital at or before the time that their reward package changes, as there is no “grace” period for existing LLP members.


Since 6 April 2014 LLPs and their members have had to consider whether an individual member should be classified as a “salaried member” and thus treated as an employee for Income Tax and National Insurance purposes.

Any member classified as a “salaried member”, due to a change in circumstances, can avoid being treated as an employee by contributing a sufficient amount of capital to the LLP. At present there is a two month “grace” period for new members to contribute their required capital. Unfortunately, there is no similar “grace” period for an existing member. As a result it is critical that this factor is borne in mind when LLPs and their members negotiate any changes to the reward package. LLPs should also bear in mind the need to ensure proper and up-to-date management of their own tax affairs and that membership tax matters do not adversely impact the firm’s principal activity.

Practical Issues

As mentioned above, it is possible to avoid a salaried member status by providing a capital contribution which must be equal to at least 25% of what would be regarded as the “disguised salary” of a member’s remuneration.

Readers will recollect that a member’s salary status is reassessed at the earlier of the beginning of the tax year or the time at which the reward package changes.

As a result, assessments of the appropriate capital contribution needs to be made at the beginning of each tax year, at any point during the financial year as and when changes in profit share, or other financial arrangements are modified and review should take place again at the end of the tax year in case further contributions are required.

Categorisation of one or more members of an LLP as salaried members will create PAYE and National Insurance administrative responsibilities for the LLP. These obligations will need to be managed as part of the firm’s PAYE processes.

In view of the absence of any period of “grace” early attention to and planning for financial contribution will be advisable. Any existing member who is at risk of being newly categorised as a salaried member, must introduce the capital required at or before the time the reward package changes.