HMRC to change their guidance on condition C of the LLP salaried member rules

The CIOT has recently been in correspondence with HMRC about the seemingly-wide approach they were taking with the application of condition C (the contribution criterion) of the LLP salaried member rules within ITTOIA 2005 ss 863A–863G. As a result of our representations, HMRC have agreed to amend their guidance; in the meantime, they recently released a statement to the CIOT:

HMRC’s position remains that the TAAR applies if the main purpose, or one of the main purposes, of the arrangements is to secure that the Salaried Member Rules do not apply.

In applying this test, HMRC will continue to take into account the policy intention underlying the legislation, which is to provide a series of tests that collectively encapsulate what it means to be operating in a typical partnership.

In doing so, HMRC would not consider that genuine and long-term restructuring that causes an individual to fail one or more of the conditions to be contrary to this policy aim (see https://www.gov.uk/hmrc-internal-manuals/partnership-manual/pm259100).

In relation to Condition C specifically, HMRC also accept that an arrangement which results in a genuine contribution made by the individual to the LLP, intended to be enduring and giving rise to real risk will not trigger the TAAR.

This means that a contribution made under a top-up arrangement will not, in HMRC’s view, trigger the TAAR if the arrangement results in a genuine contribution made by the individual to the LLP, intended to be enduring and giving rise to real risk.

We are therefore intending to amend our guidance in the Partnership Manual, including that at https://www.gov.uk/hmrc-internal-manuals/partnership-manual/pm259200 and https://www.gov.uk/hmrc-internal-manuals/partnership-manual/pm259310. The amended guidance will, in effect, reverse the changes that were made in February 2024.