Earlier this year, HMRC updated its guidance on the interpretation of this legislation.
It now states that the TAAR can be triggered when a member’s capital contributions are topped up periodically to avoid Condition C.
For example, if an employee put £25,000 into the business and received a £100,000 share of profits one year, then increased this to £50,000 in the following year because their profit share looked likely to hit £250,000, HMRC could decide they were deliberately trying to keep their capital above 25pc of the profit and ask them and the firm to pay NI.
Accountants have interpreted HMRC’s recent update as a sign the tax authority could increasingly target firms where partners have been increasing their capital funding.
Mr Sterling said: “HMRC is potentially looking at LLPs where individuals have upped their share. I would not be surprised if their focus moves to these entities, looking at capital at risk.”
HMRC has the powers to go back four to six years and collect underpaid taxes due.
Mr Spencer said: “I haven’t seen much evidence of HMRC opening lots of formal enquiries at the moment but the change in guidance is certainly a precursor for them to do. I suspect over the next six to 12 months there could be a rise in enquiries as many firms may have failed to note the change in guidance.”
He continued: “These rules have been in existence for 10 years and firms have often used the capital requirement as a failsafe and adapted levels of capital as required. To now say that such adaptations falls under the anti-avoidance provisions seems like a bit of an over-reach from HMRC.”
A spokesman for HMRC said “We updated our guidance in February to clarify the circumstances where particular avoidance rules would apply, to help customers get their tax right.
“We have not needed to increase compliance activity regarding the Salaried Member Rules since the guidance was updated.”
