Defeat for Bluecrest – Court of Appeal rules on Condition B

The Court of Appeal (CoA) has released its judgment in The Commissioners for HMRC v BlueCrest Capital Management (UK) LLP [2025] EWCA Civ 23 a landmark case on the application of the ‘Salaried Member’ tax rules. The judgment found in favour of HMRC, overturning the decisions of the First-tier Tribunal (FTT) and the Upper Tribunal (UT) and remitting the case to the FTT. There is much to be digested in the judgment, but in short, it represents a victory for HMRC, albeit one won on surprising (and potentially for HMRC not entirely welcome) terms. The key point for LLPs is that the direction of travel has changed, whereas the FTT, upheld by the UT, widened the net of what is meant by ‘significant influence’ for Condition B of the ‘Salaried Members’ rules, the CoA has narrowed it. Unless an appeal is launched that finds otherwise, the judgment will restrict the ability of partners to take the position that they exert ‘significant influence’ over the affairs of their LLP.

The BlueCrest case began in 2022. BlueCrest sought to claim that a number of its members should not be taxed as employees and HMRC sought to invoke the ‘Salaried Members’ legislation to claim that they should be. For the rules to apply, the members needed to meet all three of the following conditions:

• Condition A – Disguised remuneration – Broadly 80 percent of the member’s profit share is ‘disguised salary’ i.e. remuneration that is fixed, or variable without relation to the overall profits of the LLP, or not in practice affected by those profits;
• Condition B – The member does not have significant influence over the affairs of the LLP; and
• Condition C – The member’s capital contribution to the LLP is less than 25 percent of their ‘disguised salary’. 

BlueCrest claimed their members failed conditions A and B and HMRC opposed this. The case went to the FTT, was appealed to the UT and then subsequently the CoA, with its judgment being released on 17 January 2025.

Despite a cross appeal of the FTT’s findings, the courts have been aligned on their judgment in relation to Condition A. The members of BlueCrest were all deemed to meet the condition. What all three judgments make clear is that there must be a concrete link between the LLP’s profits and how the member’s profit share is calculated for the condition to be failed. 

The FTT, supported by the decision of the UT, found that some of the members of BlueCrest met condition B, whilst others failed the condition. The findings were contrary to HMRC’s stance that to have significant influence, a member must be able to influence the affairs of the whole LLP. The tribunal ruled a member may have significant influence if they could only significantly influence particular (albeit important) aspects of the LLP’s affairs such as its profits. Of interest in the judgment of the lower courts was the purposive interpretation taken, the tribunal noted that there needed to be a realistic examination of the facts in each case.

The CoA’s decision appears to be in direct opposition and whilst it results in a defeat for BlueCrest, is of particular interest because HMRC’s appeal was not upheld on the basis they had expected. The CoA found that the FTT and UT have erred on a point of law and have remitted the case to the FTT. At point are the very facts that made the judgment at the FTT of interest; the CoA judgment is firm in that only influence deriving from the legally enforceable rights and duties of the members is to be taken into account in assessing whether they have ‘significant influence’, not de facto influence arising from other arrangements. It should be noted that this reasoning was not part of HMRC’s original submission to the courts and may give unwanted results should the focus of the courts move from what happens in reality to merely the legal rights of a member. 

Taken alongside HMRC’s change to their guidance on Condition C (See our earlier article on this) the decision highlights the need for LLPs to have a firm understanding of the basis on which they consider members fail the conditions to be a salaried member. Any members relying solely on their failure of Condition B should undertake a detailed review of their position and the evidence they hold to support their position in light of the judgment. More commonly in professional service and asset management LLPs, Condition B was considered in support of another failed condition and these members should review their position to ensure their primary defence stands particularly when viewed alongside the change to HMRC guidance on Condition C. Understanding the statutory basis of your own position, its relation to the recent case law and how it might be affected in the longer term are the order of the day.

BlueCrest have 28 days to make an appeal to the Supreme Court. Whether they decide to appeal, the re-assessment of the case by the FTT and the outcome of HMRC’s internal review of their guidance on Condition C will be of great interest to all involved in LLPs whether they be advisors, CFOs, Heads of Tax or members.

For further information please contact:

• Richard Green
• Simon Ross-Skinner