Supreme Court clarifies salaried members test in HMRC v BlueCrest Capital Management ruling

The Supreme Court has dismissed an appeal by BlueCrest Capital Management (UK) LLP against HM Revenue and Customs, upholding a Court of Appeal ruling that could affect how hedge funds and other LLP structures determine which members are taxed as employees rather than partners.

Handing down judgement on 1 July 2026, Lord Richards and Lady Simler, with whom Lord Briggs, Lord Hamblen and Lord Burrows agreed, addressed the correct interpretation of the salaried members legislation contained in sections 863A to 863G of the Income Tax (Trading and Other Income) Act 2005, introduced by the Finance Act 2014 to counter disguised employment within limited liability partnerships.

The dispute concerned PAYE determinations of approximately £142 million and Class 1 National Insurance contributions of around £55.3 million, which HMRC sought to recover from BlueCrest in respect of members it considered should have been taxed as employees across the 2014 to 2019 tax years. The legislation applies a three-part test, Conditions A, B and C, under which a member is treated as an employee only if all three conditions are met. BlueCrest accepted that Condition C, relating to capital contribution, was satisfied by all relevant members, leaving Conditions A and B in dispute.

Condition A asks whether at least 80% of a member's expected remuneration constitutes "disguised salary", meaning it is fixed, varies without reference to the LLP's overall profits, or is not in practice affected by those profits. BlueCrest argued that discretionary allocations paid to portfolio managers and desk heads, calculated by reference to the profits they individually generated, fell outside this definition because a policy existed capping total allocations against the firm's overall profits, a cap that in practice was never triggered. The Supreme Court rejected this argument, agreeing with the tribunals below that portfolio managers remunerated according to profits generated by themselves or their own team, rather than the firm as a whole, satisfy Condition A regardless of a theoretical overall cap.

Condition B asks whether a member's mutual rights and duties give them significant influence over the affairs of the partnership. The First-tier Tribunal had found that certain portfolio managers with capital allocations of at least $100 million, along with desk heads, exercised sufficient influence to fall outside the scope of the legislation, based partly on de facto influence exercised informally rather than derived strictly from the LLP agreement. The Court of Appeal disagreed, holding that qualifying influence must be traceable to the contractual and statutory framework governing the LLP, excluding influence arising from personal qualities, strong performance, or informal arrangements.

The Supreme Court largely endorsed that approach, holding that the relevant influence must derive from legally enforceable rights and duties, whether set out directly in an LLP agreement or arising through delegated authority or appointment to a specific role that can be traced back to it. The court further held that the requisite influence generally involves managerial or strategic decision-making affecting the partnership's affairs as a whole, rather than operational decisions confined to one part of the business, even a core part. Applying this to BlueCrest's LLP agreement, the court found that day-to-day investment decisions taken by portfolio managers, however commercially significant, did not of themselves amount to significant influence over the partnership's affairs generally.

Because the tribunals below had approached the question of influence on a mistaken legal basis, the Supreme Court agreed the matter should return to the First-tier Tribunal for reconsideration in light of the correct test, with no further evidence to be filed.