Neil Williams
Partner, Corporate Tax Services - Professional Services
03 July 2026
Neil Williams and Louise Cupples are Partners in our Professional Services tax team working with businesses across the legal, consultancy and property advisory sectors supporting them with transactions, international expansion and tax compliance and advisory services.
In a landmark decision, the Supreme Court (SC) has unanimously dismissed the BlueCrest Capital Management (UK) LLP (BlueCrest) appeal on the application of the salaried member rules to its members. While this does not quite yet bring an end to the long-running saga, the judgment provides clarity over the correct approach to determining significant influence for Condition B and over the application of Condition A to personal performance-linked remuneration arrangements.
With significant implications for many LLPs and their members, particularly those operating in the professional services and investment sectors, this has been one of the most closely watched cases in recent years. Clarification over how the salaried member rules work is welcome, but the risk of significant additional liabilities arising on partner remuneration, including for prior years, will be a real cause for concern. Revised guidance and a ramp-up in compliance activity may be expected from HMRC.
The SC’s comments confirm that LLPs that reward individual members based principally on personal performance without, in practice, this being affected by overall LLP profits will find it hard to escape Condition A.
In many LLPs, however, a combination of factors, which might include the performance of the individual, their team and/or their division, will be taken into account when allocating profits between members. Amounts determined in such a way may still fall outside of Condition A if they are, in a substantial way, linked to overall profits of the LLP.
Firms can also no longer rely on HMRC’s original guidance and approach in respect of Condition B, which indicated that the exercise of influence in practice, even if outside the constitutional framework of the LLP, could be sufficient to fail Condition B. It is now clear that a member must have formal rights and duties traceable to the LLP agreement through which they are able to exercise significant infuence over the LLP’s affairs as a whole.
The SC’s construction of the Condition B test is, however, not quite as narrow as had been feared following the CA’s ruling. In endorsing the ability to take into account rights and duties formalised outside the face of the LLP agreement, including through the appointment of a member to a committee with delegated authority and/or to a specific role, this should provide for a reasonably workable approach for determining Condition B in practice. Reconsideration of BlueCrest by the First-Tier Tribunal under this approach may add some more insight in due course.
LLPs should revisit their salaried member analysis to assess the level of risk. This should include a review of:
The salaried member rules provide for the determination of a LLP member as either self-employed or employed for tax purposes. The rules are based around three conditions which focus on certain characteristics of partnership to identify those individuals whose relationship with the LLP is more akin to that of an employee.
Condition A is met if it is reasonable to expect that at least 80% of the total amount payable by the LLP in respect of the member’s performance of services for the LLP is (a) fixed, (b) variable, but 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 the LLP’s profits or losses.
Condition B is met if the member does not have significant influence over the affairs of the LLP under the mutual rights and duties of the members of the LLP, and of the LLP and its members.
Condition C is met if the member’s capital contribution to the LLP is less than 25% of their disguised salary from the LLP.
BlueCrest is a UK LLP that forms part of the wider BlueCrest Group. It provides investment management services as sub-manager to hedge funds managed by a lead manager entity in the Group, as well as back-office services to other Group entities. The members can be categorised as:
In the periods concerned, there were approximately 80 members in total, with over half being portfolio managers.
The dispute with HMRC focused on Conditions A and B. It was accepted that all members met Condition C.
The Court of Appeal (CA) endorsed the findings of the First-Tier Tribunal (FTT) and Upper Tribunal (UT) in respect of Condition A, agreeing with HMRC’s position that all members met this condition as their discretionary allocations were not variable by reference to the overall profits of the LLP but by their own performance.
However, although the FTT and UT had accepted that most of BlueCrest’s portfolio managers had significant influence over the affairs of the LLP, meaning they did not meet Condition B, the CA held that this finding was flawed as the test had been applied incorrectly. Under the CA’s interpretation, the influence had to be grounded in the legally binding constitutional framework of the LLP and, rejecting the common understanding of both HMRC and BlueCrest, de facto influence did not qualify. This marked a significant narrowing of the circumstances in which an LLP member could fail Condition B.
The SC’s decision on Condition A confirms that the receipt by a person of a share of profits made by that person in the performance of their duties is the type of remuneration intended to fall within Condition A, the purpose of which is to distinguish between what is typical remuneration for a partner and what is typical remuneration for an employee. The existence of a merely theoretical risk that the share could be reduced if total profits of the firm were insufficient would not itself provide evidence that the remuneration is not ‘disguised salary’.
After a long period of uncertainty, the SC’s judgment provides clarity on how to approach the Condition B test.
Having concluded that the FTT had made material errors in their approach to determining Condition B, the SC agreed that the CA had been right to remit the case back to the FTT to reconsider the facts in light of the correct construction of the test.
We have practical experience of supporting LLPs in navigating the complexities of the salaried member rules. Our services include:
If you would like to discuss the implications of the Supreme Court’s decision for your LLP, please contact Jitendra Patel – Principal or your usual BDO contact.
