A recent ruling by the UK’s highest court could lead to an increase in employment-related tax costs for limited liability partnerships (LLPs), experts have said.

Hatice Ismail and Jamie Robson of Pinsent Masons were commenting after the UK Supreme Court clarified (43-page / 369KB PDF) two of three conditions relevant to whether the so-called salaried members rules apply to LLP members or not.

Where the salaried members rules apply, affected LLP members are considered to be employees for tax purposes. This means they should be paid through the PAYE system with income tax and National Insurance contributions (NICs) deducted prior to payment. The LLP is also required to pay employer NICs on payments to those members. Generally, LLP members are paid on a self-employed basis and employer NICs are not payable, so falling within the rules could be costly for an LLP.

The salaried members rules apply to an LLP member where three conditions are met: that it is reasonable to expect that at least 80% of the individual’s total remuneration – fixed and variable – should be deemed to be “disguised salary” (‘condition A’); that the individual doesn’t have significant influence over the affairs of the partnership (‘condition B’); and that the individual’s capital contribution to the partnership is less than 25% of their expected “disguised salary” (‘condition C’).

The Supreme Court assessed conditions A and B in the case before it.

With condition A, the Supreme Court considered whether “...

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