Salaried members rules and the significant influence test

HMRC sends letters to firms under enquiry

HMRC is sending letters to firms with an open enquiry into the significant influence test (condition B of the salaried members rules). The letters indicate that HMRC will not shift its position on the employment status of fixed share members who claim self-employment based on significant influence. Instead, HMRC is protecting its stance while awaiting a potential Supreme Court appeal in the BlueCrest case.

Understanding the BlueCrest case

The First-tier Tribunal (FTT) initially ruled in favour of BlueCrest’s fixed share members. It found that members with some influence over aspects of the LLP could qualify as self-employed. However, the Court of Appeal overturned this decision. It ruled that significant influence must come from legal rights under LLP rules and legislation. Influence based only on job responsibilities does not meet the legal threshold.

Why this matters for law firms

Law firms should not assume that HMRC will accept fixed share members with significant influence over an office, team or sub-division have significant influence over the whole firm for the purposes of securing self-employment status. HMRC is unlikely to accept this argument without clear legal backing. Firms must demonstrate that influence stems from formal rights and duties within the LLP agreement.

Capital at risk

We continue to advise firms to focus on the capital contribution route instead. Fixed share members should hold at least 25% of their deemed remuneration as capital at risk. This approach offers a more robust argument for self-employment status. It aligns more closely with HMRC’s expectations and legal interpretations.

Clarify what counts as deemed remuneration

Firms using the 25% capital contribution route should:

• Clearly define what counts as deemed remuneration (often more than the fixed share)

• Ensure that the calculation is not seen as artificial or contrived to avoid the salaried members rules

Avoid falling foul of the TAAR

The targeted anti-avoidance rule (TAAR) applies if arrangements aim to avoid the salaried members rules. If capital contributions appear contrived to keep self-employment status, HMRC may challenge them under TAAR. Firms must ensure that capital at risk reflects genuine financial exposure. Avoid structuring contributions solely to maintain self-employment status.

Next steps for firms

Firms should review their LLP agreements and member arrangements carefully. They should assess whether members meet the legal definition of significant influence. If not, they should consider increasing capital contributions to meet the 25% threshold. Document all decisions and calculations clearly to support your position during an enquiry.

Need help? We’re here

If you’d like to discuss how these developments affect your firm or need help reviewing your current arrangements, please get in touch. We can guide you through the rules and help you build a strong, compliant position.