BlueCrest Salaried Member Rules Case
Court of Appeal Decision
In January 2025, the Court of Appeal released its decision in the BlueCrest case. The case was about whether certain members of BlueCrest Capital Management (UK) LLP (BlueCrest) should be taxed as employees under the UK salaried members rules. The Court of Appeal overturned the decisions of the First-tier Tribunal and Upper Tribunal and found in favour of HMRC.
The issues
BlueCrest was a UK LLP providing investment management services. BlueCrest had argued that a number of its members should not be taxed as employees. Members of LLPs are generally taxed as self-employed, rather than employees, which can give a significant saving in NICs.
In return, HMRC argued that the salaried members legislation applied. This legislation provides that members should be treated as employees if three specific conditions are met, namely:
Condition A: that at least 80% of the member’s total remuneration is disguised salary. Disguised salary is remuneration that is fixed, or if variable, is not connected to the overall profits of the LLP.
Condition B: the member does not have a significant influence over the affairs of the LLP.
Condition C: the member’s capital contribution to the LLP is less than 25% of their disguised salary.
Both parties had agreed that condition C was met, so the issues focused on conditions A and B and in particular condition B.
Significant influence
The Court of Appeal found that significant influence in the context of Condition B must relate to ‘the affairs of the partnership generally, viewed as a whole’ and must be based in the legal rights and duties of the members, normally set out in the LLP deed. The court called this ‘qualifying influence’ which it considered should be in respect of strategic decision making, rather than performance of duties in conducting the business.
The Court of Appeal also found that de facto influence (what an individual does day-to-day) is not enough even if that de facto influence is significant.
The Court of Appeal has remitted the case back to the First-tier Tribunal although it seems likely that there will be an appeal to the Supreme Court.
Comment
This was a disappointing decision for many. At the same time, HMRC’s internal review on its updated guidance on Condition C (top ups of capital contributions) is still awaited.
The requirement for significant influence to be based in the legal rights and duties of the members is new but will now become a focus when determining whether a member satisfies the test. Therefore, firms should consider reviewing their LLP deeds, particularly so where any members are relying solely on their failure of Condition B
Deeds and other documentation should reflect this new finding.
If you would like to discuss any of the issues in this article, please get in touch.
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