DISGUISED EMPLOYMENT

The Government is cracking down on situations in which workers are treated as self-employed for tax purposes, and hence pay low amounts of NICs, but from the outside they appear to act as employees. The following changes in the tax law are proposed to block the use of 'self-employed' workers working through LLPs or who are hired-out through employment agencies.

LLPs

All individual members of LLPs are currently taxed as self-employed persons, even if they receive a regular 'salary'. This is the default position of the law and nothing is being 'fiddled' to put workers in this position. However, HMRC believe this rule is being abused, and the workers involved may not realise that they are technically self-employed.

From 6 April 2014 salaried members of LLPs will be treated as employees of the LLP if  all of the following conditions are met:

- the member works for LLP and at least 80% of the pay he receives from
the LLP is disguised salary;
- where the member has contributed any capital to the LLP, that capital
amounts to less than 25% of the member's 'disguised salary' for the
year; and
- the member is not involved significantly in the management of the LLP.

The Government has not yet defined term 'disguised salary'. If you have salaried members in your LLP we need to talk about these tax changes.