The UK Supreme Court has handed down its judgment in HMRC v BlueCrest Capital Management (UK) LLP, dismissing BlueCrest’s appeal and clarifying the salaried members rules.
The decision carries major implications for asset managers, hedge fund managers and other investment management businesses that operate through limited liability partnerships.
The Supreme Court confirmed that influence over an LLP’s affairs must be grounded in a member’s legally enforceable rights and duties, not informal or de facto authority.
Commercial importance, strong investment performance, client relationships and responsibility for significant profits will not, by themselves, satisfy the significant influence test under Condition B.
The salaried members rules were introduced to prevent individuals who are, in substance, closer to employees from being taxed as self-employed LLP members.
Under Condition B, the mutual rights and duties of the members must not give the individual significant influence over the affairs of the LLP for the rules to apply.
Many investment management LLPs have placed particular focus on Condition B, especially where senior portfolio managers or desk heads hold substantial investment responsibilities but may not contribute sufficient capital to fail Condition C.
The Supreme Court also confirmed HMRC’s position on Condition A, ruling that remuneration linked primarily to an individual’s own portfolio performance can constitute “disguised salary” even where an overall profits cap exists.
The Court clarified that a profits cap does not, by itself, make remuneration a genuine share of overall partnership profits, which is a significant warning for LLPs with individual performance-based pay structures.
On Condition B, the Court confirmed that qualifying influence is not limited to rights expressly set out in the LLP agreement and may arise through delegated authority or appointment to a role, provided those arrangements trace back to legally enforceable rights.
The influence must also relate to the affairs of the LLP as a whole, meaning strategic or managerial decision-making carries more weight than operational authority over a single portfolio, desk or business line.
The Supreme Court added that the existence of reserved powers or veto rights in favour of certain members does not automatically prevent other members from demonstrating significant influence, with each case remaining fact-specific.
The judgment does not depart fundamentally from the Court of Appeal’s earlier approach but provides more detailed guidance on how the test should be applied in practice across investment management structures.
LLPs that currently rely on Condition B should review whether the relevant members’ influence is properly evidenced by LLP agreements, committee terms of reference, delegated authority frameworks and governance records.
The case will now return to the First-tier Tribunal to be reconsidered in light of the Supreme Court’s interpretation, with the original findings of the First-tier and Upper Tribunals having been rejected by higher courts.