Salaried Member Rules for LLPs: April 2025 update

In our recent February 2025 update on the Salaried Member Rules for LLPs, we noted that HMRC had indicated that they would reverse the February 2024 changes made to their published guidance. These changes focused, in particular, on how the Targeted Anti-Avoidance Rule (TAAR) included in the Salaried Member Rules applied where there was any restructuring undertaken to fail Condition C of the Salaried Member Rules. Updated guidance has now been published which will provide some comfort to many LLPs implementing capital contribution top-up arrangements, provided those arrangements involve genuine and enduring capital contributions exposed to real risk.

The Salaried Member Rules

As a brief reminder, the Salaried Member Rules were initially introduced in 2014 to tackle “disguised employment” through LLPs where members provide their services on terms more like those of employees than partners in a partnership. The Salaried Member Rules contain three conditions: where all of these are met in relation to a particular member of an LLP that member is treated as an employee for tax purposes with any “disguised salary” being subject to PAYE and NICs.

The three conditions can, broadly, be summarised as follows:

• Condition A requires at least 80% of the amount payable to the individual during the relevant period for the individual’s services will be “disguised salary” (as defined in the legislation).
• Condition B is met if the individual does not have “significant influence” over the affairs of the LLP. “Significant influence” is not defined but the Court of Appeal decision in BlueCrest helps us interpret the term.
• Condition C is met if a member’s contributed capital is less than 25% of their reasonably expected “disguised salary” in a particular tax year.

The TAAR provides that “no regard is to be had to any arrangements the main purpose, or one of the main purposes, of which is to secure” that the Salaried Member Rules do not apply to a member of the LLP.

Many LLPs have implemented top-up arrangements whereby members periodically top-up their contributed capital to ensure that it exceeds 25% of their expected disguised salary. Such arrangements would ensure that Condition C is failed and that the Salaried Member Rules do not apply to the member. However, a strict reading of the legislation raises questions around whether such an arrangement would be caught by the TAAR (as it is largely designed to avoid the Salaried Member Rules applying). This is where the HMRC’s guidance has been influential in guiding LLPs, their members, and their advisers.

Updates to HMRC guidance

The February 2024 changes

Before the February 2024 changes HMRC’s guidance stated that HMRC would not generally take issue with genuine capital contributions. However, the February 2024 changes reflected a more hard-line stance on top-up arrangements and included a clear statement that top ups made to avoid the application of Condition C “will trigger the TAAR”.

As such, the February 2024 changes caused concern for many LLPs which used periodic top ups to ensure that their members’ contributed capital remained above the 25% of disguised salary threshold.

The April 2025 changes

In this latest update to their guidance, HMRC state that it will be a question of fact whether initial or further contributions are part of an arrangement with the main purpose of ensuring that the Salaried Member Rules do not apply. Genuine capital contributions, even as part of top-up arrangements, which are intended to endure and give rise to real risk will not trigger the TAAR. This change takes into account the underlying policy rationale behind the Salaried Member Rules.

The updated guidance expands on some specific points:

• The term “real risk” is designed to capture circumstances where the individual member is themselves at risk of losing their contributed capital in situations where the LLP becomes insolvent or is loss-making.
• If the contributed capital is not genuinely available to the LLP to use commercially (for example, it is ring-fenced for the benefit of a member or members), this is an indication that it is not a genuine contribution and/or not subject to real risk.
• the fact that the LLP is well capitalised should not have a negative bearing on whether the contribution is genuine or at real risk.

Other changes to the guidance remove references to the TAAR being triggered where “any arrangements in place have a main purpose of preventing the individual being a salaried member”.

Conclusions

Whilst the updates to HMRC’s guidance will be welcomed by many LLPs and their members, care still needs to be taken when considering the practical application of the TAAR. We would recommend that LLPs consider their overall capital requirements and ensure that capital contributions meet the partnership’s needs and represent genuine contributions which would be at risk should the LLP fail.

The recent shifts in guidance and the litigation in Bluecrest show that the Salaried Member Rules are being actively considered by HMRC. Nor is the Bluecrest decision itself necessarily final: the LLP there has sought permission to appeal to the Supreme Court. We may not, then, have heard the end of the argument on the interpretation of Condition B.

With this shifting backdrop it is important to ensure that you take advice on the application of the detailed, complex, and nuanced Salaried Member Rules when considering any restructuring arrangements or, indeed, navigating their general application. Please do get in touch with our experts below should you wish to discuss any of the above or explore how Moore Kingston Smith can assist you.