The Employment Tribunal found that an individual who had been a member of an LLP (paying tax and NI as a self employed person) should have been regarded as an employee. The individual in question was originally an employee who later entered into an arrangement where he received a fixed profit share (instead of a salary) and a variable profit share (instead of a bonus).
This is not a tax case, and an employment tribunal has its own specific focus when looking at this status issue. However, it is likely to have applied the same tests in reaching its decision as would HMRC. In this case, it is clear that the ET felt that the relationship between the individual and the firm was one of employee/employer due to the control exercised by the firm over how the individual performed his duties. It also provides some authority for the proposition that agreement by an employee of a firm to be remunerated by way of profit share, does not necessarily make him a member and it could be that HMRC has taken note of this case to use it as a basis for an attack on the self-employed status of members within partnerships and LLPs.
In addition to potential liabilities for employers’ and employees’ National Insurance Contributions and, possibly income tax withholding, partnerships and LLPs will be concerned about potential employment protection liabilities in a worsening economy.
Partnerships and LLPs should satisfy themselves that arrangements for Partners and members are sufficiently robust to withstand any such attack.
United Kingdom Employment Appeal Tribunal
For further information or to discuss any of the issues raised, please contact John Mooney, Guy Abbiss or David Widdowson on +44 20 3051 5711.