Salaried member rules: BlueCrest appeal dismissed

The case of HMRC v BlueCrest has been progressing through the courts since 2022, with an ultimate tax liability of around £200m. BlueCrest, an investment management LLP, argued that its members should be taxed as self-employed individuals rather than employees. HMRC maintained that the relevant members met the conditions under the salaried member rules, introduced in 2014, and should therefore be taxed as employees.

The Court agreed with HMRC, finding that members’ pay constituted disguised salary and that the LLP’s governance structure did not give individual members significant influence over the partnership. Applying the correct legal test, the question of whether any individual members fail Condition B has been remitted to the First-tier Tribunal for further assessment. Condition A was determined conclusively against BlueCrest at every level and is not being reconsidered. 

Who counts as a salaried member?

Under the salaried member rules, three conditions determine whether an LLP member should be treated as an employee for income tax and national insurance contributions (NIC) purposes. A member who fails any single condition is taxed as a self-employed member. 

Condition A – disguised salary

This condition is met if at least 80% of expected remuneration is fixed or varied without reference to overall LLP profits or losses, or not in practice affected by them. The Supreme Court found that members did receive a disguised salary, noting the points below.

Individual performance does not equal partnership profit-sharing

Remuneration that’s primarily calculated through each member’s own investment portfolio performance, rather than the LLP’s overall profits, is disguised salary.

A profit cap that doesn’t come into effect doesn’t count

BlueCrest was consistently profitable so the profit cap never applied. As such, the Court rejected this as a genuine link to overall firm profits.

Following the spirit of the law

Condition A is designed to identify genuine profit-sharing characteristic of traditional partnerships, not remuneration structures that merely retain a nominal link to firm profits. The Supreme Court found that this case did not.

Condition B – significant influence

This condition is met if the LLP agreement and enforceable rights or duties do not give the member significant influence over the affairs of the partnership as a whole. 

The court found that Condition B rests solely on formal, legally enforceable rights under the LLP agreement or statute and informal influence doesn’t carry any weight. However, where authority is formally delegated under the agreement, then the rights held by those delegates can qualify. The court established the following principles.

• Only formal contractual rights count – de facto influence derived from strong personal performance, seniority, relationship capital, or the size of trading books does not satisfy Condition B. 
• Delegated authority can qualify – influence arising from a formally appointed role (such as a portfolio manager or committee member) can qualify if the appointment and associated rights can be traced back to the LLP agreement, even if not explicit. 
• ‘Significant’ means commercially meaningful influence over the LLP’s affairs as a whole – this requires a genuine voice in high-level or strategic decision-making, not day-to-day operational decisions, however high value. 
• Making multi-million-pound investment decisions is not enough – responsibility for individual portfolio management relates to only specific parts of the business and does not constitute influence over the partnership’s affairs as a whole.
• Voting rights matter – formal voting rights under the LLP agreement are relevant, but where a corporate member holds a dominant vote that individual members cannot collectively override, those rights are unlikely to amount to significant influence. In BlueCrest’s case, 82 individual members could not outvote a single corporate member holding 100 votes.

Condition C – capital contribution

This condition is met if a member’s capital contribution is less than 25% of their expected disguised salary for the year. BlueCrest conceded this point throughout, and it was not in issue.  

Applying the salaried member rules

This is the first Supreme Court ruling on the salaried member rules and provides definite guidance for how to interpret Conditions A and B. As such, it ends any prospect of arguing that de facto influence or individual trading significance can be a substitute for formal governance rights.

The decision has sector-wide implications for investment management LLPs and professional services partnerships. Any LLP where remuneration is driven by individual rather than firm-wide performance, or where corporate members hold dominant voting rights, should review its position in light of this judgment.

There are three practical steps to consider: 

• Review your LLP agreement – assess whether governance rights are genuinely meaningful and enforceable, or merely nominal on paper.
• Consider your remuneration structure – if pay tracks individual rather than firm-wide performance, Condition A is likely to be met.
• Consider historic exposure – HMRC can potentially review PAYE and employers’ NIC for years where the salaried member rules apply. 

For more information on the salaried member rules, contact Ami Shah or Terry Heatley.