PM258300 - When to apply the test
ITTOIA/S863D(3) and (4)
Condition C has to be determined:
- at 6 April 2014 or, if later, when M becomes a member; and
- after that, at the beginning of each tax year.
In addition, the test needs to be re-determined whenever:
- there is a change in the contribution, or
- there is, otherwise, a change in circumstances that might affect whether or not Condition C is met.
In practice, where Condition C is not met, assuming all other circumstances remain the same, an increase in the contribution will not require a re-test as, clearly, Condition C will continue not to be met.
Example
This example shows a change in circumstances which requires Condition C to be re-determined.
MJ is a member of the SSS LLP at 6 April 2014. At that date, MJ is expected to receive a Disguised Salary of 拢100,000 in the 2014/15 tax year.
MJ鈥檚 capital contribution at that date is 拢30,000, which is at least 25% of his Disguised Salary. Therefore, Condition C is not met.
On 1 October 2014, MJ鈥檚 remuneration arrangements are amended so that his Disguised Salary for the tax year will now be expected to be 拢125,000. The change was not expected prior to this date.
The new arrangement represents circumstances affecting the question of whether or not Condition C is satisfied. As a result the test needs to be re-determined on 1 October 2014. Condition C will now be met as MJ鈥檚 capital contribution is less that 25% of his Disguised Salary.
Additional rules
In addition to the general rule, there are some additional rules which take priority over the general rule and apply:
when a member joins or is expected to leave part way through the year (see PM258400);