Changes to LLP member taxation and employee incentive schemes could have wide ranging implications for UK employers.

Background –

As always 6 April means a new UK tax year and a raft of employment and employee-tax related legislative developments. This Client Alert summarises the key changes which came into effect on 6 April 2014 and certain other key developments on the horizon. Employers of UK-based employees, particularly those operating or considering implementing share-based incentives, should ensure they understand the changes.

Taxation of LLP Members –

The UK government introduced new tax legislation on 6 April 2014 which governs how members of a limited liability partnership (LLP) are taxed on the income they derive from the LLP. Our earlier Client Alert UK Tax Shake Up for Partnerships summarised the three conditions that Her Majesty’s Revenue & Customs (HMRC) will apply to determine whether a member of an LLP should be taxed as an employee (and therefore subject to employee and employer National Insurance contributions (NICs) via pay-as-you-earn or PAYE) rather than taxed as a “true” partner, or on a self-employed basis. Broadly, if a partner fails any one of these conditions, the partner’s income should not become subject to these withholding taxes under PAYE.