Bonuses paid after employees became partners

The taxpayer a shirt retailer paid bonuses to five members of the limited liability partnership (LLP) under a long term incentive plan. The recipients had been employees before being admitted to the partnership. HMRC decided the payments were deferred remuneration and were subject to class 1 primary and secondary National Insurance as earnings of employees. This was on the basis the entitlements were calculated when they were employees.

The taxpayer appealed.

The First-tier Tribunal decided that the bonuses made to five members of the LLP constituted remuneration from employment. This was because the bonuses related to earlier periods when the recipients were employees of the LLP rather than members. The payments were not made because each recipient was a member of the LLP; they were made instead by virtue of their being an LLP member who had complied with the conditions of the bonus scheme open only to employees. Had...