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Where the capital contribution is reduced, Condition C will need to be re-determined.

The general rule will apply.

Example

This example illustrates how the test is applied when the capital contribution is reduced.

A is a member of the ABC LLP. At the start of the tax year, Condition C is not met as A has Disguised Salary of 拢450,000 and has made a capital contribution of 拢120,000 in accordance with the LLP Agreement. Therefore, A鈥檚 contribution is more than 25% of his Disguised Salary.

Circumstances change and the members agree that A can reduce his capital contribution to 拢40,000 to enable him to fund a divorce settlement.

Condition C needs to be re-determined as there has been a change in A鈥檚 capital contribution.

A now has a capital contribution of less than 25% of his Disguised Salary ((拢40,000/拢450,000) x 100 = 8.8%). Condition C is now satisfied. Whether A is now a Salaried Member will depend upon whether he satisfies Conditions A and B.