On 1 July 2026, the UK Supreme Court handed down its long-awaited decision in HM Revenue & Customs v. BlueCrest Capital Management (UK) LLPhttps://supremecourt.uk/uploads/uksc_2025_0028_judgment_2466ebefe8.pdf. on the application of the UK’s “salaried member” rules. The judgment broadly affirms the Court of Appeal’s findings and its remittance of the case to the First-tier Tribunal (Tax) (FTT), and unanimously dismisses BlueCrest’s appeal.
This Client Alert summarises the case and provides key takeaways for UK limited liability partnerships (LLPs) and their members.
An individual member of a UK LLP is generally treated as a partner for income tax, National Insurance contributions (NICs), and Growth and Skills Levy (GSL) purposes in relation to the LLP’s activities and property. The UK government introduced the “salaried member” rules in 2014 to counter the perceived avoidance of Pay As You Earn (PAYE) obligations and NICs which could be achieved by making individuals, who would otherwise be taxed as employees, LLP members. Where the rules apply, they deem an individual member of a UK LLP to be an employee of the LLP for tax purposes.
The rules only apply where all three conditions are satisfied by an individual member. If an individual member “fails” one or more of the conditions, that individual will continue to be taxed as a self-employed partner of the LLP. The conditions are:
The tax implications of an LLP having incorrectly applied the “salaried member” rules may be substantial. Employer NICs (current rate, 15%) and, if applicable, GSL (current rate, 0.5%) will be due on the compensation of a “salaried member”. In addition, HMRC may seek to levy penalties and interest on the unpaid employer NICs and GSL as well as on the income tax and employee NICs that the LLP failed to withhold via PAYE in respect of such member. This treatment will not only apply to compensation that the member would have been subject to tax on as profits of their (self-employed) trade, but also could extend more broadly to, for example, the receipt of an entitlement to carried interest or other employment-related securities.
BlueCrest is a UK LLP which provides investment management services to funds managed by its wider group and back-office and administrative support services to other group entities. The appeals to the Court of Appeal and the Supreme Court only concerned portfolio managers with capital allocations of $100 million or more and “desk heads” (or senior portfolio managers), given that the lower courts had already determined that the other portfolio managers and the non-portfolio managers were “salaried members”.
BlueCrest’s LLP agreement bestowed management powers to a board chosen by two corporate members. However, that board could delegate its authority to committees, including an executive committee which was required to be established under the LLP agreement. The board was required to consult members on “strategic matters affecting the Business” at meetings convened at least once a year, at which members could vote. Certain matters relating to changing the nature of the LLP’s business and undertaking exceptional borrowing, lending, guarantee, or security transactions were reserved to be decided by a vote of members.
The Supreme Court noted that the individual members only had one vote each and could not (even as a collective) outvote one of the corporate members who was entitled to 100 votes. The LLP agreement gave members limited information rights and stated that they had no right or authority to act for the partnership, or vote on matters relating to it, except as provided for under the LLP agreement. These governance arrangements were central to a number of comments made by the Supreme Court on the application of Condition B to the senior portfolio managers.
The payments made to the senior portfolio managers each year by the UK LLP included a discretionary allocation. Whether a discretionary allocation constituted “disguised salary” was key to determining whether or not Condition A was “failed”. The discretionary allocations for individual portfolio managers were calculated using a formula which referred to the profits made by them personally. The discretionary allocations for senior portfolio managers were calculated by the profits made by their desks. In both cases, costs were then deducted to give a (net) allocation. Such allocations were then paid out of BlueCrest’s total profits for that year.
The Supreme Court dismissed BlueCrest’s appeal with respect to both Conditions A and B, with most of the judgment concerning the application of Condition B.
Prior to the Court of Appeal decision, it was generally understood (and stated in HMRC’s published guidance) that, when assessing whether a member has “significant influence” for the purposes of “failing” Condition B, one needed to look not just to the LLP agreement itself but also at how the LLP operates in practice. As such, a member could have significant “de facto” influence regardless of what was in the LLP agreement.
Contrary to the above (and, notably, HMRC’s published guidance), the Court of Appeal found that Condition B required significant influence to derive from, and have its source in, the legally enforceable mutual rights and duties of the members conferred by the statutory and contractual framework governing the operation of the LLP. Influence which does not derive from these sources (if attributable to a member) could not be the basis on which a member has “significant influence” and thus “fails” Condition B (such influence being “qualifying” influence. However, if another person (such as another member or indeed a non-member) were to possess such “de facto” or other influence then this could act negatively, as that would be relevant to determining whether or not a member’s influence based on the statutory and contractual framework is significant. Accordingly, any such “de facto” or other influence could make it harder to show that a member’s qualifying influence is “significant”.
The Supreme Court affirmed and expanded on the Court of Appeal’s findings in this respect. Condition B is only concerned with influence arising from “legally enforceable rights and duties conferred by the contractual and statutory framework which governs the operation of the partnership, including, where relevant, by reference to any implied contractual terms and any common law or equitable rights and duties”. Influence not derived from these sources would not be qualifying (even if actually possessed by the member in question). However, the test can take into account influence not expressly found “on the face of the LLP agreement itself but which can ultimately be traced back to that agreement”, such as where a member has had mutually enforceable rights and duties delegated to them or by virtue of their appointment to a specific role in the LLP.
The Supreme Court reiterated that “influence” and “significant” are ordinary words that must take their everyday meaning and gave some guidance as to their respective meanings:
Condition B is clear that qualifying influence must be over the “affairs of the LLP”, and the Supreme Court held that in the context of the legislation, this phrase should carry its widest meaning. The lower courts were therefore incorrect to find that qualifying influence could be over (i) only part of a partnership’s affairs or business (even if over a core part of its business) and (ii) operational matters.
The Supreme Court found it instructive that the purpose of the test set out in Condition B was to distinguish a member whose position is akin to that of an employee from one who is more like a “partner in a traditional partnership”. As the business of a partnership could be conducted by partners or employees on a day-to-day basis, influence from such activities is unlikely to be qualifying influence for the purposes of Condition B. Qualifying influence is more likely to be found in rights allowing a member to participate in or have the ability to influence “high level”, “managerial”, or “strategic” decision-making regarding an LLP’s affairs. While the Supreme Court did not rule out that qualifying influence could, in certain scenarios, be held without a member having involvement in “decision-making at a strategic level”, it did not expand on what those scenarios might be.
The Supreme Court emphasised the importance of being able to apply the conditions prospectively, prior to a particular tax year. As such, the relevant rights and duties must be sufficiently clear and determinable. This leaves some uncertainty as to the application of the rules where the LLP agreement clearly bestows qualifying influence on an individual, but they choose not to wield such influence in practice or their influence is otherwise actually diminished.
HMRC previously placed considerable emphasis on what happened in practice when determining qualifying influence, and while the Supreme Court clearly did not endorse that approach, it did accept that the nature and extent of influence that was actually exercised by members or others could be relevant when assessing the question of whether qualifying influence was “significant”.
The Supreme Court upheld the Court of Appeal’s finding that the lower courts had mistakenly applied Condition B. It noted that the FTT had really only considered the “de facto” control exercised by the portfolio managers and had not conducted a thorough investigation of the terms of the LLP agreement itself.
The clauses of the LLP agreement establishing the governance arrangements detailed above were highlighted as being of critical importance to the application of Condition B and, as such, needed to be considered by the FTT.
In particular, the Supreme Court noted that:
Regarding Condition A, BlueCrest appealed the finding that the discretionary allocations were “varied without reference to the overall amount of the profits or losses of the limited liability partnership”. BlueCrest argued that, if total profits were not sufficient to pay the discretionary allocations, they would be reduced accordingly and, as such, varied with reference to its total profits or losses. This argument had been rejected by all lower courts and was also rejected by the Supreme Court.
The Supreme Court made reference to the clear intention of the design of the conditions to reflect principal characteristics of partners in “traditional” partnerships. Namely, when considering Condition A, “the profits and losses of the partnership are shared between the partners”.
Ultimately, the Supreme Court found that the discretionary allocations were made with respect to the individual profits generated by the senior portfolio manager or their desk and were “not determined by reference to, or in any substantial way linked to, the overall profits of BlueCrest”.
While BlueCrest did not concern Condition C, it should be noted that HMRC’s guidance on the application of the targeted anti-avoidance rule in the “salaried member” rules (the TAAR) to this condition was updated last year.
HMRC’s guidance on this point was amended in 2024 to imply that, where arrangements are in place to “top-up” contributions in order to “fail” Condition C, these arrangements would not be taken into account for the purposes of Condition C by operation of the TAAR. This guidance was then updated in early 2025 to broadly clarify that:
While this updated guidance was broadly welcomed, BlueCrest is a reminder that HMRC guidance is not law and can be both incorrect and subject to change. Any taxpayer relying on such guidance, or otherwise taking a position in line with it, has very little recourse in the event such guidance proves to be incorrect.
It is now firmly established that significant influence for the purposes of Condition B must be found in legally enforceable rights that are derived from the statutory and contractual framework governing the operation of the LLP (principally being the LLP agreement).
UK LLPs with individual members who currently or previously relied on “failing” Condition B should review their LLP agreement and governance arrangements to ensure that: (i) any influence can be traced back to rights and obligations in the LLP agreement; (ii) such influence is significant for these purposes (e.g., they have a seat at the table with respect to decisions relating to the LLP’s affairs which is substantive in a practical and commercial sense with respect to the conduct of such affairs in the real world); and (iii) no other influence possessed by them or anyone else renders their influence not significant.
The Supreme Court’s decision confirms that influence for the purposes of Condition B can derive from rights found outside of the LLP agreement (such as in the case of delegated authorities, implied contractual terms, and rights and duties established or enforceable under common law or in equity). The decision also contemplates the existence of qualifying influence which is not over “high level”, “managerial”, or “strategic” decision-making of the LLP but little guidance is given on when such influence could be found in practice. As such, there is clearly a large evidential burden on a member to prove that any such rights or influence alone results in Condition B being “failed” with respect to the activities of the LLP.
The judgment is particularly difficult for UK LLPs with members who have historically relied on “failing” Condition B on the basis of a member’s consultation rights or rights with respect to certain reserved matters. Those UK LLPs should review the extent of the rights granted to such members under the LLP agreement and how they are exercised in practice, and consider whether such rights (i) can be sufficiently distinguished from those considered by the Supreme Court and (ii) demonstrate an intention to give members who possess them significant influence.
UK LLPs with individual members who have historically relied on “failing” Condition A should review their remuneration arrangements in light of the Supreme Court’s findings, especially where those arrangements do not allocate the profits and losses of the partnership between the members in a manner akin to a traditional partnership.
The Supreme Court placed substantial interpretive weight on the conditions having been enacted to distinguish traditional partners from employees. As such, UK LLPs and advisors will likely need to consider this distinction even when assessing the application of provisions of the “salaried member” rules not disputed in this case (c.f., HMRC’s updated guidance on Condition C).
Notably, the “salaried member” rules (and, therefore, the decision in BlueCrest) apply to and should be considered by all UK LLPs with individual members irrespective of that LLP’s business, including legal and financial services, and not just those undertaking an investment management business (such as BlueCrest).