HMRC V BlueCrest: Supreme Court Confirms Narrower Approach To Condition B

HMRC v BlueCrest Capital Management (UK) LLP [2026]

This case review was co-authored by Charlie Middleton, Trainee Solicitor.

On 1 July 2026, the Supreme Court gave judgment in HMRC v BlueCrest Capital Management (UK) LLP [2026] which concerned the salaried members rules in the Income Tax (Trading and Other Income) Act 2005. In this eagerly-awaited decision, the Supreme Court provided important guidance on when members of a limited liability partnership should be taxed as employees rather than partners. The decision will have significant implications for professional services firms, investment managers and many other businesses operating through the LLP structure.

Background

Following the introduction of LLPs in 2000, the structure has been seen by policy-makers as allowing LLP members, effectively operating as employees, to obtain the tax advantages associated with partnership status. In response, Parliament introduced the salaried members rules in the Finance Act 2014 to prevent so-called “disguised employees” and the LLPs from benefiting from self-employed tax treatment.

Under the legislation, an LLP member will be treated as an employee for income tax and National Insurance purposes if each three of the following statutory conditions are satisfied:

1. The member is substantially remunerated other than by reference to the overall profits or losses of the LLP (the “disguised salary” condition)
2. The member does not have significant influence over the affairs of the LLP (the “no significant influence” condition)
3. The member contributes capital of less than 25% of their disguised salary (the “low capital contribution” condition).

HMRC assessed that almost all of BlueCrest’s members satisfied each of the three conditions and therefore fell within the salaried members regime, the exceptions being members of BlueCrest’s original executive committee. It issued PAYE determinations of approximately £142 million, together with National Insurance liabilities of approximately £55 million. BlueCrest accepted that Condition C was satisfied but disputed HMRC’s conclusions in relation to Conditions A and B.

The Tax Tribunal dismissed BlueCrest’s appeal on Condition A but allowed it on Condition B in respect of desk heads and portfolio managers with more than $100 million in capital allocations. That decision was upheld by the Upper Tribunal. The Court of Appeal set aside and remitted the Tax Tribunal’s decision on the basis that it had fallen into error on the application of Condition B.

The Supreme Court’s decision

The Supreme Court unanimously rejected BlueCrest’s appeal on Condition A, agreeing with HMRC and each of the lower courts that the relevant remuneration arrangements constituted disguised salary. The majority of the Court’s decision focussed the interpretation of Condition B and, in particular, the meaning of “significant influence” over the affairs of an LLP.

The Supreme Court held that the relevant influence must derive from the LLP’s legally enforceable constitutional arrangements. This includes powers conferred by the LLP agreement, statutory rights and authority validly delegated through the LLP’s governance structure. By contrast, influence arising solely from an individual’s reputation, commercial success, expertise or informal working relationship does not satisfy the statutory test.

Importantly, the Supreme Court recognised that qualifying influence is not confined to powers expressly contained within the LLP agreement itself. It held that members exercising authority through management committees or other delegated governance bodies may possess sufficient influence, provided those powers ultimately derive from the LLP’s constitutional arrangements. This reflects the reality that many modern partnerships, including LLPS, delegate significant management responsibilities rather than concentrating them solely in the partnership agreement.

The affairs of the LLP generally require a focus on managerial or strategic decision-making, although the Supreme Court left open the possibility that a member may have significant influence without having participated in such decisions in certain circumstances. The Supreme Court agreed with the Court of Appeal that significant influence requires “a degree of influence… which has a practical and commercial substance in the conduct of those affairs in the real world”.

Central to the judgment was the distinction between governance and performance. A portfolio manager may generate substantial profits and be commercially indispensable to the success of the business. They may exercise operational responsibilities. But that does not mean they exercise significant influence over the affairs of the LLP. The relevant question is whether they possess legally conferred powers enabling them to influence the management, direction or governance of the LLP itself. Commercial importance alone is insufficient.

The Court considered that this interpretation best reflected Parliament’s intention. The legislation was designed to distinguish genuine partners, who participate in the management and governance of the business, from individuals who, despite being labelled members, are effectively employees in all but name.

What this means

The Supreme Court has established that the Condition B enquiry focuses on legally conferred governance powers rather than commercial or operational influence. In doing so, it seeks to provide more predictable, and accessible, framework for both HMRC and taxpayers when applying the legislation.

The application of Condition B remains fact-sensitive. The Supreme Court noted that Bluecrest’s management structure was very “top-down” with significant authority being vested in the board and executive committee. However, those familiar with the operation of LLPs, particularly larger LLPs, will know that it is common for significant influence to be vested in particular committees or individuals.

The Supreme Court’s confirmation of the narrower approach to Condition B should prompt LLPs and their advisers to review their governance structures and their approach to the salaried members rules generally.

Firms should carefully consider whether members without significant influence would nonetheless be considered partners because either Conditions A or C exclude them from the salaried members rules.

Where firms are reliant on members not meeting Condition B, they should consider whether members who genuinely participate in the management of the business have sufficient formal delegated authority to demonstrate significant influence, or whether existing governance arrangements require amendment.

Conversely, LLPs should be cautious about assuming that senior operational responsibilities alone will be enough to satisfy Condition B. Firms cannot simply rely on the fact that an individual generates significant revenue or occupies a commercially important position. Instead, they should ensure that any governance powers exercised by senior members are properly reflected in the LLP agreement or other legally effective governance arrangements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.