Partnerships were common in many professional businesses where regulations prohibited them from becoming limited companies.

The salaried partner was a “stepping stone” to becoming an equity partner, delivering partner status and receiving a salary rather than a profit share but without an initial equity investment.

This led to ambiguity over whether salaried partners were employees or self-employed for tax purposes. The distinction has an impact on National Insurance for both the salaried partner and the partnership.

Several years ago, the regulations changed and professional firms were able to avail themselves of liability protection by becoming Limited Liability Partnerships, LLP’s. Many have done just that. If you were a partner of an LLP, regardless of whether you were a salaried or equity partner, you were unequivocally treated as self-employed for tax purposes.

In Dec 2013, HMRC issued the results of its consultation into the tax status of salaried partners and since April 2014, the following tests have been applied to all partners, regardless of whether they are traditional partnerships or LLP’s. Partners must pass at least one of the three tests to be treated as self-employed, and therefore be eligible for the associated National Insurance reductions.

  1. Is at least 25% of their annual income linked to the profits of the partnership?
  2. Have they contributed an amount of capital into the partnership which is at least 25% of their annual fixed income?
  3. Do they play a significant role in the management of the partnership?

It is possible that the salaried partner will become a financially less attractive concept, effectively reverting to an employee, with status, but no NI benefit. If salaried partners wish to retain their self-employed status, they may be asked to contribute capital, a hurdle for some, or the partnership will need to overhaul its profit share and salaried partner remuneration arrangements to comply with test 1.

If you require our input on this subject you can of course contact Graham Buckell at or call on 01332 365855.