JurisdictionUK Non-devolved
Judgment Date20 May 2020
Neutral Citation[2020] UKFTT 230 (TC)
Date20 May 2020
CourtFirst Tier Tribunal (Tax Chamber)

[2020] UKFTT 230 (TC)

Judge Tracey Bowler


Ms Rebecca Murray and Ms Marianne Tutin, counsel, instructed by Born & Co. appeared for the appellant

Ms Laura Prince, counsel, instructed by Haroon Khalid, litigator, of HM Revenue and Customs' Solicitor's Office, appeared for the respondents

Member of an LLP – NICs liability – Payments made before FA 2014 treated as self-employment income – ITTOIA 2005, s. 863 – Whether a member of an LLP could be an employee of the LLP – LLPA 2000, s. 4(4) – Appeal dismissed.

The First-tier Tribunal (FTT) found that a member of an LLP was liable to Class 4 NICs on payments made to him by the LLP.


Mr Wilson (the Appellant) was a member of Haines Watts LLP (Haines Watts) for the period from 31 October 2012 to 31 March 2014 (ie before the changes made to the taxation of the profits of LLPs by FA 2014 and NICA 2014). He appealed to the FTT against a decision of HMRC that he was a self-employed earner and therefore liable to Class 4 NICs in respect of payments made to him by Haines Watts.

The Appellant argued firstly, that LPA 2000, s. 4(4) did not preclude a person who is a member of an LLP from also being an employee of the LLP and secondly, that the arrangements overall should be treated as giving rise to a contract of employment. In support of his argument, the Appellant pointed to a number of factors which he said demonstrated that his membership of the LLP had been “hollowed out” and was of no real substance. These included that he was not required to make a capital contribution, he was paid a fixed sum even if the business suffered losses and that he had no control over the hours he worked, the place in which he worked and the resources he used in doing that work.

The FTT rejected the arguments put forward by the Appellant, finding that:

  • the general charging provision for Class 4 NICs (SSCBA 1992, s. 15) depended on the income tax treatment and the Appellant was subject to income tax as a self-employed person on the payments he received from Haines Watts by virtue of ITTOIA 2005, s. 863;
  • if there was there was scope in the tax rules for the Appellant to be taxed as an employee, LLPA 2000, s. 4(4) did not enable a person to be treated as an employee for tax purposes when a member of an LLP; and
  • even if LLPA 2000, s. 4(4) meant that a person could be an employee and a member of an LLP, the payments made to the Appellant were as a member of Haines Watts as if a partner and not as an employee. In this regard, the FTT found that different levels of authority can be granted to members within an LLP, that the Appellant had significant rights and obligations as a member of Haines Watts and that the control exercised by Haines Watts over his work was of a type that is common in professional firms.

The appeal was dismissed.


The events in this case pre-date the introduction in 2014 of rules relating to the salaried members of LLPs.


[1] Mr Wilson appeals under section 11 of the Social Security Contributions (Transfer of Functions etc.) Act 1999 (“the 1999 Act”) against a decision made by HMRC under section 8 of the 1999 Act on 21 March 2018 that he was self-employed and therefore liable to pay National Insurance Contributions (“NICs”) in respect of payments made to him resulting from his engagement with Haines Watts LLP (“Haines Watts”) for the period 31 October 2012 to 31 March 2014. Mr Wilson maintains that he should be taxed as an employee of Haines Watts at the relevant time. (The relevant law does not include the changes made to the taxation of LLP partners made in section 74 Finance Act 2014 and the National Insurance Contributions Act 2014.)

[2] HMRC have agreed to stand over the collection of income tax until the final determination of the current appeal.


[3] In November 2011 Mr Wilson joined Haines Watts. On that day he signed an LLP agreement (“the LLP Agreement”) and a deed of variation (“the Deed of Variation”) and a side letter was written to him by three members of Haines Watts on behalf of the firm (“the Side Letter”).

[4] By the middle of 2012 Mr Wilson was in dispute with Haines Watts about a possible capital contribution and the amount of payments due to Mr Wilson. In January 2013 he started to query the basis of payments made to him by Haines Watts and whether they were correctly described as “profit share”. He left Haines Watts on 31 March 2014 and remains in dispute about whether he or Haines Watts are liable to pay the tax due on payments made to him.

[5] During 2014 there was an exchange of correspondence between HMRC and Mr Wilson and then his accountants, Born & Co, concerning his employment status. Mr Wilson maintained that it was Haines Watts' responsibility to pay the NICs and income tax in relation to payments made to him as he was an employee at the relevant times.

[6] On 20 August 2015 HMRC wrote to Mr Perry, the Managing Member of Haines Watts, to ask about the terms of Mr Wilson's engagement with Haines Watts. Mr Perry replied in a letter dated 30 October 2015. A meeting was held between HMRC officers, Mr Perry and another Haines Watts member on 23 February 2017. In two letters dated 27 March 2017 from HMRC to Born & Co and Mr Perry, HMRC concluded that Mr Wilson was self-employed throughout his engagement with Haines Watts and was therefore responsible for paying his NICs and income tax.

[7] On 12 June 2017 Born & Co wrote to HMRC to ask for the opinion in the letter of 27 March 2017 to be revisited. In a reply dated 27 September 2017 HMRC asked for further documentation to be provided. In letters dated 31 January 2018 to both Mr Perry and Born & Co HMRC confirmed the opinion that Mr Wilson was self-employed at the relevant times. Born & Co disputed HMRC's analysis in a letter dated 6 February 2018.

[8] The decision which is appealed was issued in a notice of decision dated 21 March 2018. Born & Co requested an independent review in a letter dated 9 April 2018. The review upheld the notice of decision in a letter dated 30 July 2018.

Preliminary issue

[9] The appeal was due to be heard by a panel consisting of a member and me. However, at the start of the hearing the member explained that he had previously been a partner of the Haines Watts partnership before its incorporation as an LLP. He had left the firm more than 20 years ago and did not know any of those involved with this case. Having regard to the overriding objective of dealing with a case fairly and justly the member stood down. I was satisfied that the overriding objective would be met by continuation of the hearing before me, sitting alone, and the parties made clear that they were content to proceed on this basis.

Grounds of appeal

[10] Mr Wilson maintains that having regard to the terms on which he joined Haines Watts, the controls applied to him in his work, and the provision of equipment and administrative support, if Haines Watts was a partnership he would be regarded as employed by the partnership. As a result of section 4(4) of the Limited Partnerships Act 2000 (“the LLPA”) he could and should be regarded as an employee of Haines Watts and taxed as such.

Burden of proof

[11] In an appeal against an assessment for tax (including NICs), the burden is on the appellant to show that the sums charged to tax by the assessment are excessive. That was confirmed by Mustill LJ in Brady (HMIT) v Group Lotus Car Companies plc [1987] BTC 480 at 487, as follows:

The starting point is an ordinary appeal before the [Tribunal]. Here, however unacceptable the idea may be to the ordinary member of the public, it has been clear law binding on this court for sixty years that an inspector of taxes has only to raise an assessment to impose on the taxpayer the burden of proving that it is wrong: T Haythornthwaite and Sons Ltd v Kelly (HMIT) (1927) 11 TC 657.

[12] The standard of proof is the ordinary civil standard, which is the balance of probabilities.


[13] The evidence consists of the agreed bundle of documentary evidence running to F721 as set out in the index, as well as: (i) the oral evidence of Mr Wilson; and (ii) the oral evidence of Mr Matthew Perry who appeared as witness for HMRC. Both of the witnesses were cross-examined.

[14] For the reasons I explain later in this decision, I have reduced the weight given to the evidence of both Mr Wilson and Mr Perry in their Witness Statements and provided orally at the hearing in relation to their understanding of the deal pursuant to which Mr Wilson joined Haines Watts. For that reason I have given greater weight to other evidence, and in particular, the documents relating to that deal.

Findings of fact

[15] Haines Watts is a limited liability partnership (“LLP”) incorporated in England on 21 April 2011.

[16] Mr Wilson qualified as a chartered accountant in Australia in 1975 and then completed a Master's degree in commerce, specialising in law and taxation law at the University of New South Wales in 1978/79. In 2006 he obtained a Masters in Taxation from the University of New South Wales. He completed a postgraduate law conversion course in the UK in July 1995 and in 1996 qualified as a chartered accountant in England. He was awarded a Doctorate in commercial law by Queen Mary College, University of London in 2017. (Despite his Doctorate he is referred to as Mr Wilson throughout the documents in this case and I therefore use the same title for him.) He became a fellow of the ICAEW in 2018. He currently researches and publishes papers regarding BRICS international tax law.

[17] Mr Wilson has worked as a tax adviser for accounting firms as well as a mining and petroleum company. He was a partner of Arthur Young Australia, before relocating to Ernst & Young New York to work in that firm's global tax desk cluster in 1991. He relocated to London in September 1993 and worked for Sumitomo Bank providing international taxation consulting advice. He then returned to...

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