UK: LLP members must be re-classified as employees for tax purposes (Supreme Court decision)
First decision of Supreme Court on salaried member rules
The Supreme Court on July 1, 2026, held in HMRC v. BlueCrest Capital Management (UK) LLP that the taxpayer’s LLP members must be re-classified as employees for UK tax purposes.
The decision is the court’s first decision on the salaried member rules, which provide that if conditions A, B, and C are met, members are treated as employees, creating income tax payroll withholding (PAYE) and employer national insurance contributions (NIC) liabilities. With respect to condition A (whether it is reasonable to expect that at least 80% of an individual's compensation will be "disguised salary" (fixed, or variable without reference to overall LLP profits)), the court upheld lower court decisions and found that simply capping total profit allocations by the total profits of the LLP was insufficient to prove that compensation actually varied with reference to the LLP's profits.
With respect to condition B (significant influence), the court found that condition B is concerned with legally enforceable rights and duties arising from an LLP’s constitutional and governance arrangements, though they can be delegated. The court clarified that significant influence involves participation in strategic or managerial decisions affecting the LLP as a whole, whereas operational responsibility for a part of the business or day-to-day management is less likely to qualify.
Read a July 2026 report prepared by the KPMG member firm in the UK