“Salaried partner” is a label, not a legal category. A salaried partner is either a true partner who takes a fixed first share of profits, or an employee who has been given the title. Which one they are depends on the substance of the arrangement, especially whether they share in profits and losses as a principal and have a right to take part in managing the firm, and the answer decides their liability for the firm’s debts, their employment rights and how they are taxed.

What does “salaried partner” mean?

HMRC’s Partnership Manual at PM132050 says the term is usually used for an employee given the title of partner, for example for prestige, but that it may also describe a real partner, such as one who receives a first share of the firm’s profits. PM132100 sets out the two possibilities:

  • an employee, not a partner at all, who has the title and may be paid partly by reference to the firm’s profits, and whose name may even appear on the notepaper; or
  • a partner who is entitled to a first share of profits and is in all other respects an ordinary partner.

This page deals with general partnerships under the Partnership Act 1890. Members of a limited liability partnership are covered by separate statutory tax rules in section 863A of the Income Tax (Trading and Other Income) Act 2005, explained in salaried member rules for LLP members. Section 863A applies to members of an LLP, not to partners in a general partnership.

How do the courts and HMRC decide?

The starting point is the definition in section 1(1) of the 1890 Act: partnership is “the relation which subsists between persons carrying on a business in common with a view of profit”. Section 2(3) adds that receiving a share of profits is prima facie evidence of partnership but does not of itself make someone a partner, and section 2(3)(b) says a contract paying an employee or agent by a share of profits does not of itself make them a partner.

HMRC’s guidance stresses that no single factor decides the question:

  • PM132100 says the key consideration is whether the person is entitled to participate as a principal in the general management and conduct of the business. Day to day management can be delegated, but a true partner has the right to take part in the firm’s general management.
  • PM132200 refers to Tiffin v Lester Aldridge LLP (2012), where the Court of Appeal said the intention of the parties is important, and to Williamson and Soden v Briars (2011), where a profit share was outweighed by other facts and Mr Briars was held to be an employee.
  • PM133000 describes Horner v Hasted (1995), where a senior manager in an accountancy practice was given partner status within the firm and paid a salary that was a share of profits, but was held not to be a partner. The same page says an agreement to share net losses, in the sense of having to make them good, is an even stronger indication of partnership than a profit share.

The ACCA’s partnership factsheet adds cases going the other way. In Train v DTE Business Advisory Services (2008) a former equity partner described as a director and employee was held to be a partner, not an employee. In Young Legal Associates v Lees (2006) a solicitor who received a fixed annual sum and contributed no capital was held to be a partner because the parties intended a partnership to meet professional practice rules. In Protectacoat Firthglow v Szilagyi (2009) workers made to sign documents calling them partners were in fact employees.

Which factors point which way?

Points towards true partner Points towards employee
Contributes capital that is at risk No capital, or capital lent and repayable regardless
Bears a share of losses Fixed pay whatever the firm’s results
Votes on firm decisions and has access to all accounts No vote, excluded from partners’ meetings
Share of assets and goodwill on dissolution No entitlement on dissolution
Can be removed only under the partnership agreement Can be dismissed under an employment contract
Signs the partnership agreement as a party Has a contract of employment or service agreement

A fixed first share of profits does not by itself make someone an employee, and a profit linked bonus does not make an employee a partner. The overall picture decides, and the documents are tested against what actually happens.

What does the answer mean for liability?

A true salaried partner has the same exposure to outsiders as any other partner. Section 9 makes every partner liable jointly with the others for the firm’s debts incurred while they are a partner, and section 12 makes every partner jointly and severally liable for the firm’s liability for wrongs such as negligence. A fixed profit share and an internal indemnity from the equity partners change who bears the loss between the partners, but not what a creditor can claim (see partners’ joint and several liability).

An employee with the title is not a partner and is not liable under section 9. But if they knowingly let themselves be represented as a partner, section 14 makes them liable as a partner to anyone who gave credit to the firm on the faith of that representation. HMRC’s PM132100 makes the same point about employees whose names appear on the notepaper. See holding out: liability as an apparent partner.

What does the answer mean for rights?

Employment Rights Act 1996 rights belong to employees, defined in section 230 as individuals who have entered into or work under a contract of employment. An employee salaried partner therefore has employment protection, including unfair dismissal rights where they qualify, and the firm has the usual employer duties.

A true partner is not an employee. The ACCA factsheet notes that partners are not entitled to statutory maternity, paternity and similar family leave rights because they are not employees, although firms can provide equivalent terms by agreement. Partners do have protection under section 44 of the Equality Act 2010, which prohibits a firm from discriminating against a partner, including by expelling them. Between the partners, the 1890 Act gives every partner a right to take part in management (section 24(5)) and says no majority can expel a partner without an express power (section 25), subject to the partnership agreement.

How are salaried partners taxed?

An employee salaried partner is taxed as an employee. The firm must operate PAYE, deducting income tax and National Insurance from pay and reporting to HMRC. A true partner is taxed on their share of the firm’s profits through Self Assessment, and GOV.UK guidance says each partner must send their own tax return. The National Insurance position for partners is covered in National Insurance for partners and LLP members.

Getting status wrong works in both directions. Treating an employee as a partner can leave the firm owing PAYE and employer National Insurance, while treating a true partner as an employee distorts the partnership return and the partner’s own return.

How does this work in practice?

Illustration only. A firm of surveyors has three equity partners. It promotes a senior surveyor to “salaried partner”. She receives a fixed £70,000 a year paid monthly, contributes no capital, has no vote and is not a party to the partnership deed, and her contract can be ended on three months’ notice. Her name goes on the letterhead.

On these facts she looks like an employee. The firm should run her pay through PAYE, she has employment rights, and she is not liable for the firm’s debts under section 9. She is, however, exposed under section 14 to creditors who extended credit because they believed she was a partner, so she should ask for an indemnity from the equity partners.

If instead she signed the partnership deed, contributed capital, took a fixed first share of profits ahead of the equity partners, voted on firm decisions and agreed to bear losses if profits fell short, she would be a true partner: unlimited liability, no employment rights, taxed through Self Assessment.

What mistakes do firms make?

  • Using the title without deciding, and documenting, which kind of salaried partner the person is.
  • Paying a true partner through payroll, or paying an employee gross as if they were a partner.
  • Assuming a fixed share and an indemnity protect a true salaried partner from creditors.
  • Applying the LLP salaried member rules to a general partnership.
  • Leaving the documents to say one thing while the person is treated differently in practice.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.