Background
On 1 July 2026, the UK Supreme Court handed down its long-awaited decision on the taxation of members in limited liability partnerships (LLPs) in the case HM Revenue & Customs v. BlueCrest Capital Management (UK) LLP.
The landmark case has significant ramifications for the financial industry and beyond. It has been the first case (from the First-Tier Tribunal through to the Supreme Court) to test the UK’s “salaried member” rules in the Income Tax (Trading and Other Income) Act 2005 (the Rules), which determine whether members of LLPs should be treated as employees or as genuinely self-employed partners for tax purposes.
His Majesty’s Revenue and Customs (HMRC) argued that several portfolio managers lacked the genuine influence and financial risk that partners in a traditional partnership carry and should therefore be recharacterised as employees for tax purposes.
The distinction is significant. Income tax and National Insurance contributions apply differently to employees and self-employed partners and fall due under different rules. Where a self-employed partner should have been accounting for tax as an employee, the additional tax liability can be significant, particularly where unpaid tax stretches back over many years.
The Supreme Court unanimously dismissed BlueCrest’s appeal, resulting in a tax bill approaching £143 million in income tax and approximately £55 million in employer National Insurance contributions.
The Salaried Member Rules
The appeal centred on the correct interpretation and application of the Rules, which are intended to identify and address cases of “disguised employment” in LLPs.
The Rules address a particular imbalance in the tax treatment of LLPs and their members compared with traditional partnerships. Without the Rules, an LLP member could be taxed as a partner even if they received a fixed salary, were not exposed to the risk of LLP losses due to the LLP’s limited liability structure, and had no role in the management of the LLP’s business.
Under the Rules, members of an LLP are treated as employees for tax purposes if three conditions (Conditions A, B, and C) are met. The Rules have a counterintuitive result: it will usually be in the best interests of the relevant member and the LLP not to satisfy, or to fail to meet, at least one of the conditions.
The appeal concerned the meaning of Conditions A and B. Condition C was not in dispute.
Condition A: Disguised Salary
Condition A is met where the member is rewarded for their services through a “disguised salary” that is fixed or varied without reference to the profits or losses of the LLP. At least 80% of the member’s total remuneration must be disguised salary, with no more than 20% paid by way of a bonus calculated on the basis of the profits of the LLP.
The Supreme Court held that discretionary allocations capped by BlueCrest’s total profits did not automatically mean that those allocations were capable of being varied by reference to the LLP’s total profits.
The Court rejected BlueCrest’s argument in notably strong terms, describing it as “so divorced” from the purpose of paragraph (b) of Condition A “or from any ordinary reading of its language that it must be rejected.”
It is worth noting that the Supreme Court reached this conclusion in the context of a consistently profitable LLP. Whether the analysis would differ for an LLP with genuinely volatile profits, or in a loss-making year, remains an open question.
Condition B: Significant Influence
Condition B is met where the member does not have “significant influence” over the “affairs of the LLP.”
The Supreme Court confirmed that the written agreement governing the operation of the LLP, usually the LLP agreement, will be the starting point for identifying the rights and duties of the LLP and its members. The Court described it is “the ultimate source.”
Legally enforceable rights and duties derived from delegated authority, or from holding specific roles in the LLP, may also give a member the necessary significant influence over the affairs of the LLP.
However, influence that cannot be traced back to an identifiable contractual, statutory, or other legal source is excluded from consideration of significant influence. Condition B is assessed by reference to the scope of the member’s formal role and not the member’s influence in practice.
The focus is likely to be on managerial or strategic decision-making, rather than operational or day-to-day decisions involving a particular part of the business. The Supreme Court left open the possibility that significant influence could arise without involvement in strategic decision-making.
Condition C: Capital Contribution
Condition C requires the individual member’s capital contribution to the LLP to be less than 25% of their expected disguised salary for the tax year.
As noted above, Condition C was not in dispute.
What LLPs Should Now Consider
LLPs have been widely adopted in the UK, so the outcome of the case is relevant to any business operating through an LLP, including hedge funds, asset managers, law firms, and accountancy practices.
UK LLPs with members who have relied on failing Condition A will want to review remuneration arrangements in light of the Supreme Court judgment, particularly where profits and losses are not allocated between members in the same way that they would be in a traditional partnership.
In addition, the judgment makes clear that significant influence must be derived from identifiable contractual, statutory, or other legal sources, principally the LLP agreement. UK LLPs with members who have relied on failing Condition B should therefore review the legal basis for those members’ rights and duties to ensure that they have the requisite significant influence to meet Condition B under the Rules.
That review should also consider whether committee or delegated roles are sufficiently traceable to the LLP agreement, following the Supreme Court’s clarification on delegation.
The case will now return to the First-Tier Tribunal for reconsideration of Condition B on the existing evidential record. No new evidence may be adduced. We will continue to monitor developments.
If you have any questions, or would like additional information, please contact one of the attorneys on our Federal & International Tax team.
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