HMRC Letters to LLPs: Are Members Really Self-Employed?

Tax Queen

Tax Expert @ Pie

3 min read

What You Need to Know

If you're a member of a Limited Liability Partnership (LLP), HMRC may write to your firm to check whether you should be taxed as an employee instead of as self-employed. If you're a sole trader or freelancer who isn't in an LLP, this doesn't change your tax bill or how you file.

An LLP works like a traditional partnership, but its members have limited liability. This means their personal assets are protected if the business fails. Members are normally taxed as self-employed and report their profit share on the SA104 form with their Self Assessment return.

Why HMRC Is Writing to LLPs

The letters follow the Supreme Court's judgment in HMRC v BlueCrest Capital Management (UK) LLP, handed down on 1 July [Editor Note: Unverified figure - check against HMRC guidance]. The court found that the firm's traders were paid on their own results. The firm's overall profit only set an upper limit on that pay.

In plain terms, pay based on your own performance counts as salary-type pay, not a real share of the firm's profits. Tax lawyers warn that firms shouldn't assume HMRC will keep accepting the way they have treated members in the past.

The Three Salaried Member Conditions

Under the salaried members rules in Sections 863A to 863G of the Income Tax (Trading and Other Income) Act 2005, you're treated as an employee if you meet all three conditions. The first is that at least 80% of your expected pay is fixed or doesn't depend on the LLP's overall profits or losses.

The second is that you don't have significant influence over how the LLP is run. The third is that your capital contribution (the personal money you've put into the firm) is less than 25% of your expected "disguised salary", which means the pay that doesn't depend on overall profits.

What This Means for Your Self Assessment

If you meet all three conditions, your LLP income would be taxed like a salary through PAYE (Pay As You Earn, where tax is taken off before you're paid), not as a profit share. Your National Insurance could change too.

You still need to report any other income, such as rent or freelance work, on your 2025-26 return by 31 January 2027. A change in your status could change what you owe, so it's worth reading up on how to budget for your Self Assessment tax bill.

Your Next Step If HMRC Gets in Touch

If your LLP has received a letter or is already under a compliance check, get specialist advice before replying. Ask your firm to review the LLP agreement, how members are actually paid and what formal rights each member has.

Clear records of your profit share, capital contributions and other income make those conversations easier. If some of your work is outside the LLP, Pie Tax is self-assessment software for sole traders, freelancers and landlords. It brings in your income and sorts your allowable expenses, so your figures are ready however your status is decided.

If you want to get those records in order before the January deadline, Try Pie Tax for free.