In brief
The UK Supreme Court has delivered its judgment in HMRC v. BlueCrest Capital Management (UK) LLP [2026] UKSC 18 - the leading case on the salaried member rules. The Supreme Court found in favour of HMRC, upholding the Court of Appeal’s earlier judgment that "significant influence" under Condition B cannot only be de facto influence and must comprise legally enforceable rights and duties arising under the terms of the LLP agreement itself, but clarifying that terms may be implied into the LLP agreement and that authority may be validly delegated pursuant to any wider governance framework put in place by the LLP agreement. The judgment also confirmed that “significant influence” requires high-level or strategic decision-making or influence over the affairs of the LLP as a whole, rather than day-to-day operational responsibility even over high-value investment decisions. The case is now to be remitted back to the First-tier Tribunal (FTT) for it to make a fresh decision based on the evidence that should be evaluated (in particular the terms of, and delegated authorities tracing back to, the LLP agreement) when applying Condition B. LLPs should now reassess their position under the salaried member rules in light of the Supreme Court's judgment.
In more detail
Under the salaried member rules, limited liability partnership (LLP) members are treated as employees for income tax and NICs purposes where three conditions are met (referred to as Conditions A, B and C). If any of the three conditions is failed, a member will not be taxed as an employee. The BlueCrest case concerned the interpretation of Condition A and, in particular, Condition B.
- Condition A is that it is reasonable to expect that at least 80% of the total amount payable by the LLP in respect of the member's performance during the relevant period in their capacity as a member of the LLP will be "disguised salary" (and for this purpose, “disguised salary” is an amount that is: (a) fixed; (b) variable, but is varied without reference to the overall amount of the profits or losses of the LLP; or (c) not, in practice, affected by the overall amount of those profits or losses).
- Condition B is that the mutual rights and duties of the members of the LLP, and of the LLP and its members, do not give the member “significant influence” over the LLP's affairs.
Background facts
- BlueCrest Capital Management (UK) LLP (BlueCrest) was an investment management business with 82 individual members in 2014. While many members made significant investment decisions, governance sat primarily with the board and executive committee, and individual members had limited voting rights.
- HMRC determined that most members met all three salaried member conditions and should be taxed as employees for income tax purposes. BlueCrest appealed, arguing in respect of Condition A that remuneration was linked to the LLP’s profits and in respect of Condition B that investment managers had significant influence over the LLP's affairs through their trading activities.
- The FTT and Upper Tribunal agreed that Condition A was met, but found that most investment manager members failed Condition B because they had significant influence over the LLP’s affairs, focusing on operational influence over BlueCrest's core investment management business, rather than managerial influence.
- HMRC subsequently succeeded on Condition B in the Court of Appeal. In its judgment, the Court placed particular emphasis on the need for the influence to have its "source" in the enforceable rights and duties of the members of the LLP, despite that interpretation not being raised either by HMRC or BlueCrest. BlueCrest then appealed to the Supreme Court on both Condition A and Condition B.
Supreme Court judgment
In its judgment, the Supreme Court unanimously dismissed BlueCrest’s appeal.
- Condition A was met as most of the relevant members' remuneration was disguised salary. This was on the basis that their "discretionary allocations" were determined primarily by the performance of each member’s individual portfolio and not the LLP’s overall profits. BlueCrest had argued that, because there was a de facto cap on total discretionary allocations if there were insufficient LLP profits, those allocations were varied by reference to the LLP's overall profits, but the Supreme Court (perhaps unsurprisingly) rejected this. It found that Condition A is intended to distinguish partners from employees, and BlueCrest’s interpretation was inconsistent with that purpose. For an amount not to constitute disguised salary, there would have to be a more substantial link between the individual member’s remuneration and the LLP’s overall profits (rather than just the individual’s personal performance).
- Condition B was met as the relevant members did not have significant influence over the LLP’s affairs. Following the Court of Appeal, the Supreme Court concluded that the FTT applied Condition B incorrectly, as the focus of its analysis had been on the members' influence deriving from their personal qualities or activities, rather than their influence deriving from their mutual legal rights and obligations under the LLP agreement. However, the Supreme Court accepted BlueCrest’s argument that such influence could be derived indirectly from those mutual legal rights and obligations, provided it could be traced back to the LLP agreement (such as through delegated authority pursuant to a governance framework put in place by the LLP agreement, or through terms implied into the LLP agreement under common law or equitable principles). The Supreme Court also held broadly that significant influence requires rights to participate in high-level or strategic decision making about the partnership’s affairs or an ability to influence such decisions. Day-to-day operational responsibilities, even over high-value investments, are not sufficient on their own. On a more helpful note, the Supreme Court accepted that veto rights of certain members, which could include founders or corporate members, do not preclude others from having significant influence.
Key takeaways
- Variable remuneration linked mainly to individual performance is likely to be at risk under Condition A, even if subject to an overall profits cap.
- It should not be assumed that members have significant influence under Condition B on the basis of day-to-day operational responsibilities, even over high-value matters. LLP agreements will be key when assessing Condition B, although it is not necessary for the member's rights to be set out fully in that agreement if they can be traced back to it.
- Given the adverse reaction from taxpayers and advisers alike to changes to HMRC's guidance on Condition C in 2024 (leading to a subsequent reversal in 2025), HMRC may show caution as to how it updates its guidance following BlueCrest. However, we anticipate that changes will be made and so this should be monitored by LLPs, particularly in relation to Condition B. Moreover, updated guidance may also comment on the application of the Targeted Anti-Avoidance Rule (TAAR) where LLP agreements are amended to clarify the roles and responsibilities of members, which would be especially relevant for LLPs seeking to change their governance arrangements as a result of BlueCrest.
What should LLPs do now?
- Revisit prior salaried member analysis in light of the Supreme Court judgment and in particular:
- To the extent reliance has been based on Condition A, review remuneration arrangements against the Supreme Court’s approach to disguised salary; and
- To the extent reliance has been based on Condition B, review LLP agreements and governance documents to ensure that members’ significant influence over the LLPs affairs can be traced back to the LLP agreement.
- Document the basis for any conclusion that members fail one or more of the salaried member conditions.
Please contact us if you would like to discuss what the judgment means for your LLP arrangements.