NICs & Partnership agreements: what a tangled web

In Peter Wilson v HMRC [2021] UT 0239, an accountancy Limited Liability Partnership ( LLP) member lost an argument that he was an employee and not a partner for National Insurance Contributions (NICs). Changes to the LLP agreement had hollowed out many of his original membership rights but he still retained enough voting rights and a profit share to be treated as a self-employed partner.

• Mr Wilson, a tax specialist, joined Haines Watts London LLP, as a member of the LLP. He claimed that subsequent amendments to the LLP agreement under a Deed of Variation and a Side Letter had effectively demoted his employment status.
• He claimed he was not subject to Class 4 NICs on his share of profits.
• It was argued that the result of the changes meant that he was on a fixed income and subservient to the other partners. This made him an employee.
• The First Tier Tribunal heard his appeal and reviewed his Employment Status, concluding that he was self-employed for NICs purposes.

He appealed to the Upper Tribunal (UT).

The UT found that the FTT has made certain errors in law:

• LLP Act 2000 deems an LLP member to be a partner.
• There is no reference to 'self employment' in the Class 4 NICs provisions, which just say that NICs are payable on the profits of a trade, profession or vocation.

The UT considered the evidence:

• The LLP was governed by its LLP agreement. The agreement was long and complicated and not well drafted. There had been concern that the FTT had misinterpreted both the agreement and its later modifications.
• Mr Wilson was described as a 'Client Member' and 'Fixed Income Member' of the LLP, one of three different types of members of the LLP.
• In terms of his partnership rights, he could vote in the appointment of Management Members, authorisations for bank signatories and borrowings, the suspension of members and where the business would be carried on.
• In terms of profit share he was entitled to £180,000 however that would be reduced if he generated less than £400,000 of fees per year. He was also given a car allowance, his tax was paid by the firm and he had a profit share of 25% of the profits arising from international tax work.
• Mr Wilson would not be paid if the LLP made a loss and he had a 25% profit share on international work.

The UT also acknowledged that the LLP agreement allowed other members to vote on its amendment and he had no power to outvote such changes, but did not place undue weight on this fact.

It found that he was a partner for NICs, in the sense that he was carrying on business in common with the other Members of the LLP.

Useful guides on this topic

Employment status & partners
What is the employment status of a partner in a partnership or a member of a LLP? Are partners/members employed or self-employed?

Will I pay less tax if I trade via a partnership?
Or a LLP compared to if I trade via a company or as a sole trader?

LLP members & NICs
Changes to the Social security regulations in 2015 ensure that LLP members are liable to NICs on their profits

External links

Peter Wilson v HMRC [2021] UT 0239