In HMRC v Bluecrest Capital Management (UK) LLP [2025] EWCA Civ 23, the Court of Appeal (CoA) found that the incorrect construction of Condition B was used to determine whether the Salaried Member rules applied. Both the First Tier Tribunal (FTT) and Upper Tribunal (UT) erred in law in accepting the broader interpretation of ‘influence’ set out in HMRC’s guidance. 

Companies 1

Bluecrest Capital Management (UK) LLP (Bluecrest) was a Mixed-member LLP and part of The BlueCrest Group. 

  • Bluecrest acted as a 'sub-investment manager', managing funds and providing support services. 
    • It was rewarded with an 18-20% return based on the performance of the investment managers.
    • It had no direct employees and its members were treated as self-employed for Income Tax and NIC purposes.
  • HMRC raised Determinations for a total of £197 million in PAYE and NICs on the basis that the Salaried Members' rules applied.

Limited Liability Partnerships (LLPs) have a separate corporate identity from their members. However, for Income Tax and National Insurance Contribution (NIC) purposes, the members are generally treated as self-employed.

  • The Salaried Member Rules were enacted to prevent LLPs from being used to disguise employment relationships and avoid employment taxes.
  • These rules remove the presumption of self-employment for LLP members who have disguised their Employment status
  • Members need to meet all three conditions for the rules to apply.
    • Condition A: Broadly, at least 80% of the members' reward is ‘disguised salary’ i.e. fixed or variable without regard to the overall profits of the LLP.
    • Condition B: The member does not have significant influence over the affairs of the LLP. 
    • Condition C: The member's capital contribution is less than 25% of their disguised salary.

Bluecrest Appealed to the First Tier Tribunal (FTT) which found that Condition B was failed.

  • The 'influence' referred to in Condition B is not limited to managerial influence and such influence could be over one or more aspects of the LLP’s affairs. It need not be over the affairs of the partnership as a whole. 
  • Members who were portfolio managers had 'significant influence' over the affairs of the partnership due to the amounts of capital they managed. 

HMRC appealed to the Upper Tribunal (UT) arguing that to have 'significant influence', a member must be able to influence the affairs of the whole LLP.

  • The UT upheld the FTT’s decision stating that 'significant influence' can mean over any part of the partnership's affairs, and be general, financial or operational. Capital allocations of over $100 million to portfolio managers indicated significant influence in absolute terms.

HMRC appealed to the Court of Appeal (CoA), which found that:

  • 'Significant influence' over the affairs of the partnership must derive from the mutual rights and duties of the members of the LLP as conferred by the statutory and contractual framework which governs the operation of the LLP. 
  • Both the FTT and UT erred in law in accepting the wider construction of ‘influence’ set out in HMRC’s published guidance.
  • In assessing Condition B, only 'influence' deriving from the legally enforceable rights and duties should be taken into account and not the 'de facto' influence arising from other arrangements.
    • ‘Influence’ should be judged to be over the affairs of the whole LLP and must be held via legally enforceable rights and duties of members.
    • The CoA noted that other arrangements may be relevant when considering if the 'influence' is ‘significant’. 

The CoA set aside the UT decision and remitted the case back to the FTT for reconsideration in light of the correct construction of Condition B.  

Editor’s comments

The FTT and UT decisions had widened the scope of ‘significant influence’ for Condition B. The CoA’s decision now narrows this scope by restricting the ability to take into account non-legally binding arrangements. It is recommended that members of LLPs review their position in light of the CoA’s decision and HMRC’s change in guidance about Condition C in 2024. It remains unclear whether BlueCrest will appeal to the Supreme Court (SC). The CoA's decision has binding authority unless it is overturned by the SC. 

BlueCrest relied on HMRC’s published guidance on Condition B. Despite this, the court noted that the question of the true construction of Condition B was always one that BlueCrest should have known would have to be resolved sooner or later, reiterating the importance of not solely relying on HMRC guidance.

Useful guides on this topic

Partnerships: Unlimited or limited?
What types of partnership are there? What are the differences?

Salaried members: When is a partner taxed as an employee?
In some circumstances, LLP members are taxed as employees under PAYE. When does this apply? 

Mixed members: Partnerships with company members
What is a mixed-member partnership? How are profits of a mixed-member partnership taxed? What tax adjustments are required? Are there any relieving provisions?

Employment status: Partners
What is the employment status of a partner in a partnership or a member of an LLP? Are partners/members employed or self-employed?

Recovery of PAYE: Regulation 80 and 72 assessments for PAYE
When can HMRC assess an employer or an employee for unpaid Pay-As-You-Earn (PAYE) and National Insurance Contributions (NICs)? What is a Regulation 80 determination? What is a Regulation 72 determination? Who is assessed and what are the conditions?

How to appeal an HMRC decision
Disagree with an HMRC decision? How do you appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

Running an LLP in tandem with a company
It is possible to run a Limited Liability Partnership (LLP) or another form of partnership in tandem with a company. Partnerships can also have corporate partners. What needs to be considered?

External link

HMRC v Bluecrest Capital Management (UK) LLP [2025] EWCA Civ 23

 

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