Bonuses paid after employees became partners of LLP

The taxpayer paid bonuses to five members of the limited liability partnership (LLP) under a longer term incentive plan. The recipients were admitted to the plan at a time when they were employees of the LLP. HMRC said the payments were earnings and subject to class 1 primary and secondary National Insurance. The LLP contended that they were received in the individuals’ capacity as members of the LLP so was taxable income from self-employment.

The First-tier Tribunal agreed with HMRC so the taxpayer appealed.

The Upper Tribunal said the key issue was whether the source of the bonus payments was from self-employment when they were paid because the individuals had by then changed their status by becoming LLP members. It was common ground that the classification of the payments for National Insurance purposes would be the same as the income tax classification. So in determining whether remuneration...