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

Condition A

Section 863B sets out how and when to determine whether Condition A is met, which tests whether at least 80% of an LLP member's expected remuneration for services is essentially disguised salary rather than a genuine profit share.

• Condition A must be assessed at specific trigger points: the start of 2014–15 (or when the member joins the LLP if later), whenever payment arrangements are introduced or changed, and immediately after the end of any period previously evaluated if the arrangements have continued unchanged beyond that period.
• A two-step process applies: first identify the "relevant period" (running from the trigger point to when the arrangements are reasonably expected to end or change), then ask whether at least 80% of total expected payments for the member's services during that period qualify as disguised salary.
• An amount is "disguised salary" if it is fixed, or varies without reference to the LLP's overall profits or losses, or is not in practice affected by those profits or losses — in other words, it resembles employment pay rather than a true entrepreneurial return.
• Once Condition A is determined to be met (or not met) at a particular time, that determination holds for all subsequent periods until a new trigger event — such as modified or new arrangements, or the expiry of the previously assessed period — requires a fresh assessment.