LLPs have become increasingly popular as a vehicle for carrying on a wide variety of businesses, although running a business as a limited company may well be the norm once corporation tax rates go down to 20% whatever the level of taxable profits.
An LLP combines limited liability for its members with the tax treatment of a traditional partnership. Individual members are deemed to be self-employed and are taxed as such on their respective profit shares as if they were carrying on a notional sole trade.
It has now been decided that deemed self-employed status is not appropriate in some cases. For example, individuals who would normally be regarded as employees in high-salaried professional areas such as the legal and financial services sectors are benefitting from self-employed status for tax purposes which leads to a loss of employment taxes payable.
The legislation may be amended (probably with effect from 6 April 2014) by simply removing the provision which deems individual members to be self-employed. This would mean applying the normal employment v self-employment tests. A consultation document proposed additional tests which may be easier to apply in certain scenarios.