Income Tax (Trading and Other Income) Act 2005 section 863D

Condition C

Section 863D sets out Condition C, one of the tests used to determine whether a member of a limited liability partnership is treated as being in a salaried member arrangement, by comparing the member's capital contribution to their expected disguised salary.

• Condition C is met when a member's contribution to the LLP is less than 25% of their expected disguised salary for the relevant tax year — meaning the member has relatively little capital at risk compared to what they are being paid
• The condition is assessed at the start of each tax year (or when the member first joins the LLP), and must be re-assessed whenever there is a change in the member's contribution or any other relevant change of circumstances
• An increase in the member's contribution that would cause Condition C to stop being met is disregarded unless it is reasonable to expect that the condition will genuinely remain unmet for the rest of the tax year — preventing temporary capital injections from avoiding salaried member status
• Where the member is not a member for the whole tax year, or where Condition C was previously met earlier in the year before a contribution increase, the member's contribution is scaled down using a fraction that excludes those days, ensuring the 25% test reflects only the period of actual membership and changed circumstances