Salaried member rules: Supreme Court decision in BlueCrest case

The much-awaited judgement from the Supreme Court (SC) was released on 1 July, with the SC dismissing BlueCrest’s appeal in relation to Condition A and B, and confirming its view on significant influence.

Members of LLPs are generally taxed as self-employed, rather than employees, which can give a significant saving in NICs. The salaried members’ legislation taxes members as employees in some circumstances, generally where their work relationship is similar to an employment relationship.

Under the salaried members’ legislation, if three specific conditions are all met then a member will be taxed as an employee. HMRC had assessed the majority of the members of this LLP as meeting all three conditions, A, B, and C:

• Condition A considers whether remuneration constitutes “disguised salary”
• Condition B considers whether the individual has ‘significant influence’ over the affairs of the LLP
• Condition C considers whether the individual’s capital contribution is at least 25% of their disguised salary

Much of the focus of the courts in this case has been on Condition B, with all courts finding that Condition A was largely met.

The First-tier Tribunal (FTT) found, and the Upper Tribunal (UT) upheld, that significant influence does not need to be exercised through a formal constitutional procedure but requires a realistic examination of the facts. It could also be over an aspect of the affairs of the LLP rather than over the affairs of the LLP generally. Investment management members (with capital allocations of at least $100million) and desk heads were found to have significant influence and therefore failed Condition B.

The Court of Appeal (CA) held that the FTT ‘s conclusion on significant influence was flawed. It determined that Condition B does not look beyond the enforceable rights and duties of the members in identifying the qualifying influence which they may have over the LLP's affairs.

The principles coming out of the CA decision diverged from HMRC’s published guidance that states if “the written agreement is not being followed and on a realistic view of the facts, the member does exercise significant influence over the affairs of the LLP as a whole then Condition B is not satisfied”.

The SC has dismissed BlueCrest’s appeal, regarding both Condition A and B. The majority of the members of the LLP therefore meet all three conditions.

The legislation states that Condition B is satisfied where: “the mutual rights and duties of the members of the limited liability partnership, and of the partnership and its members, do not give [a member] significant influence over the affairs of the partnership.”

The SC found that:

• These are the legally enforceable rights and duties conferred by the contractual and statutory framework which governs the operation of the partnership
• Influence over the affairs of the LLP which cannot be traced back to an identifiable contractual, statutory or other legal source is not sufficient, whether that influence derives from informal, de facto or external arrangements or arises in any other way.
• The influence must be over the affairs of the LLP; day to day management or operational management of only a part of the business, even in relation to a core part, is not sufficient.

This is important for professional services firms because many LLPs have senior partners who are major fee earners but have little formal role in governance. Following BlueCrest, high billing or commercial importance alone will not help them fail Condition B.

The SC held that remuneration linked to the profits of an individual portfolio manager or desk, rather than the overall profits of the LLP, can still constitute “disguised salary”. The existence of an overall profit cap did not alter that conclusion.

The SC therefore concluded that the BlueCrest members met Condition A, concluding that the majority of their remuneration constituted “disguised salary”.

While this will be a disappointing judgment for LLP members, there was good news last year following HMRC’s internal review on its updated guidance on an aspect of Condition C (top ups of capital contributions).

In 2024, HMRC released an update to its guidance, which suggested that where a member increased their capital contribution because their compensation had risen, that increase in capital could be disregarded for the purposes of Condition C. This was on the basis that it fell within the TAAR.

In early 2025, however, HMRC confirmed its intention to effectively reverse the updated guidance, confirming that the capital contribution will be looked at as it stands, and changes made due to compensation increases will not be disregarded.

Following the SC decision, firms will naturally be concerned that they are likely to see increased HMRC scrutiny of the salaried member rules – particularly those who previously assumed that seniority or influence in practice was sufficient to fail Condition B – that assumption may now need to be revisited.

Firms can take practical steps now by reviewing:

• Their existing salaried member testing processes and associated documentation, including decisions regarding the allocation of profit shares
• The rights and duties of the members provided for within the LLP Agreement, particularly with reference to governance, decision-making and control. 

If you would like to discuss the implications this could have for your firm, do get in touch with your usual S&W contact or one of the contacts listed.

Approval code: NTEH7072632