Supreme Court Tightens UK LLP Salaried Member Rules
The UK Supreme Court has dismissed BlueCrest Capital Management’s appeal in a tax dispute worth approximately £197 million.
The case concerned whether portfolio managers and other members of BlueCrest’s limited liability partnership should be treated as partners or employees for income tax and National Insurance purposes.
The Court confirmed that formal LLP membership does not secure partner tax treatment by itself. Remuneration, influence and capital participation must satisfy the statutory salaried member rules in practice.
The judgment is particularly relevant to investment managers, trading firms, advisory businesses and professional services firms using tiered LLP structures. It also affects businesses whose junior or fixed-share members receive performance-linked pay but have limited governance rights.
For readers’ convenience, we have placed the key official sources and regulatory materials at the end of this article.
Publish Date
20 July 2026
Reading Time
17 minutes
Category
Legal News
Jurisdiction
UK
BlueCrest loses final appeal
The Supreme Court delivered its unanimous judgment in Commissioners for His Majesty’s Revenue and Customs v BlueCrest Capital Management (UK) LLP on 1 July 2026.
The Court dismissed BlueCrest’s appeal and upheld HMRC’s position on the application of the salaried member legislation. The judgment is reported as [2026] UKSC 18.
The dispute covered the tax years from 2014–15 to 2018–19.
HMRC had issued PAYE determinations of approximately £142 million and an assessment of approximately £55.3 million for Class 1 National Insurance contributions. The combined amount was therefore approximately £197.3 million.
A tax classification decision
The salaried member rules determine whether an LLP member is treated as an employee for income tax and National Insurance purposes.
The decision does not automatically establish employee status under employment law. Employment rights, pensions, regulatory status and other legal questions may require separate analysis.
The salaried member rules
The rules were introduced through the Finance Act 2014 and inserted into sections 863A–863G of the Income Tax (Trading and Other Income) Act 2005.
They apply where an individual performs services for an LLP in their capacity as a member and all three statutory conditions are satisfied.
All three conditions must apply
An individual becomes a salaried member only where Conditions A, B and C are all met.
Failing any one condition keeps the individual outside the salaried member treatment, although other tax and employment rules may still apply. HMRC’s current manual also confirms that all three conditions are required.
Condition A: disguised salary
Condition A examines the member’s expected remuneration.
It is met where at least 80% of the amount payable is disguised salary. This broadly covers remuneration that is:
- fixed;
- variable without reference to the LLP’s overall profits or losses; or
- not materially affected by those overall profits or losses.
A payment does not escape Condition A merely because it is described as a profit allocation or calculated after the LLP has earned revenue.
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 commercial importance and senior responsibility are not enough by themselves. The influence must arise from the mutual rights and duties governing the relationship between the LLP and its members.
Condition C: capital contribution
Condition C is met where the member’s capital contribution is less than 25% of their expected disguised salary.
Condition C was not disputed in the Supreme Court appeal. The BlueCrest litigation focused on Conditions A and B.
BlueCrest’s member structure
BlueCrest operated a UK LLP providing investment management services within a wider group.
Its members included portfolio managers, traders, senior managers and individuals performing other business functions. Some portfolio managers controlled substantial investment portfolios and generated significant returns.
BlueCrest argued that these responsibilities supported partner treatment. HMRC maintained that many members were economically closer to employees under the statutory tests.
Executive committee influence
HMRC accepted that four original executive committee members had sufficient influence for Condition B not to apply to them.
The central dispute concerned members outside that core group, including portfolio managers with considerable operational authority but more limited formal influence over the LLP.
Performance pay remained disguised salary
BlueCrest argued that portfolio managers’ remuneration varied with profits because their allocations depended on investment performance and the LLP’s ability to generate income.
The Supreme Court rejected the argument that individual performance linkage was sufficient.
Overall LLP profits are decisive
Condition A focuses on whether remuneration varies by reference to the overall profits or losses of the LLP.
A formula based on an individual portfolio, trading book, client base or business unit may still amount to disguised salary. It is not enough that the individual’s work contributes to the LLP’s profitability.
This distinction is significant for investment and professional services firms.
A portfolio manager may receive a percentage of investment returns. A consultant may receive an allocation based on personal billings. A lawyer may receive a fixed share plus an amount linked to clients originated.
Each arrangement may remain within Condition A where it lacks a sufficient connection to the LLP’s overall profits and losses.
Labels do not alter the calculation
Calling remuneration a profit share does not determine the tax result.
The expected economic operation of the formula is more important than its title in the LLP agreement, remuneration policy or member documentation.
Responsibility was not sufficient influence
The most important part of the judgment concerns Condition B.
BlueCrest argued that portfolio managers exercised significant influence because they made investment decisions, controlled substantial capital and generated major profits.
The Court accepted that they carried serious responsibility. It did not accept that this necessarily amounted to significant influence under the legislation.
Influence must have a legal source
The Court held that relevant influence must derive from the mutual rights and duties of the members.
Those rights may be found in:
- the LLP agreement;
- personal membership terms;
- committee mandates;
- valid delegations of authority;
- implied contractual arrangements; or
- statutory rules applying to the LLP.
Influence based only on reputation, expertise, revenue generation or management’s willingness to listen may be insufficient.
Operational control is not partnership control
An individual can control an important part of the business without having qualifying influence over the LLP’s affairs.
A portfolio manager may decide which assets to purchase. A partner in an advisory firm may lead major client engagements. A trader may control a profitable desk.
Those responsibilities do not automatically provide influence over the LLP’s strategy, governance, financial commitments, member admission, remuneration system or wider business direction.
Influence need not cover everything
The judgment should not be read as limiting Condition B to members who control the entire LLP.
Significant influence may relate to a sufficiently important part of the LLP’s affairs. The assessment depends on the nature of the business, the member’s rights and the importance of the area over which influence is exercised.
This point is important because HMRC’s existing manual repeatedly refers to influence over the LLP “as a whole.” The manual’s Condition B section was last updated before the Supreme Court judgment and has not yet been aligned with the Court’s final interpretation.
HMRC guidance remains outdated
HMRC’s online Partnership Manual was reviewed on 17 July 2026 as part of the publication check for this article.
The Condition B contents page records an update date of 7 January 2026. No post-judgment amendment referring to [2026] UKSC 18 was identified.
Existing guidance still uses older wording
The current manual states that an individual with significant influence over the business “as a whole” will fail Condition B.
It also says that a member who has significant influence only over part of the business satisfies Condition B.
That formulation must now be read in light of the Supreme Court judgment.
The Court’s interpretation is authoritative. Businesses should not rely on a narrower manual formulation where it conflicts with the judgment.
Some guidance remains useful
The manual continues to provide useful practical examples concerning:
- strategic decisions;
- appointment of members;
- business acquisitions and disposals;
- major financial commitments;
- business plans;
- delegated powers;
- management committees; and
- regulated senior management functions.
HMRC also states that simply having a vote, expressing a view or holding an FCA senior management function may not be decisive.
These examples remain relevant, but firms should apply them through the legal framework established by the Supreme Court.
LLP agreements need review
The judgment does not make LLPs ineffective or inherently high risk.
It does make it harder to rely on partnership labels where remuneration and governance resemble employment.
Member titles carry little weight
Terms such as partner, fixed-share partner, junior partner or portfolio manager do not determine the salaried member analysis.
Each individual must be tested against Conditions A, B and C.
Two members with the same title may receive different tax treatment where their remuneration, governance rights or capital contributions differ.
Governance rights must be genuine
LLPs relying on Condition B should identify the actual source of each member’s influence.
Relevant rights may include:
- voting on strategy;
- approving budgets;
- appointing or removing senior personnel;
- admitting or expelling members;
- approving acquisitions;
- entering major contracts;
- determining business lines;
- approving remuneration policies;
- committee membership; and
- authority over material investment or client decisions.
The rights should be enforceable and commercially meaningful.
Artificial provisions added solely to improve tax treatment may attract challenge, particularly where the member does not exercise the rights in practice.
Informal influence is less reliable
Some members may be regularly consulted because they generate revenue, hold client relationships or possess technical expertise.
That evidence may support a wider factual analysis, but informal consultation is materially weaker where the member lacks corresponding rights under the LLP’s governing arrangements.
Delegation should be documented
Large LLPs often delegate management to committees or individual members.
HMRC’s current manual recognises that members of a management committee may fail Condition B where they effectively run the LLP. It also recognises that investment managers can exercise significant influence where they control and direct the firm’s investment strategy.
Following BlueCrest, firms should document:
- who granted the authority;
- the legal basis for the delegation;
- its scope;
- whether it can be withdrawn;
- the decisions covered; and
- how the authority is exercised.
Remuneration models need testing
Condition A may create exposure even where members receive highly variable compensation.
Personal performance may still resemble salary
A member’s remuneration may change significantly from year to year while remaining disguised salary.
The issue is whether the variation refers to the LLP’s overall profits or losses, not whether the member’s personal results fluctuate.
Models requiring review include:
- portfolio performance allocations;
- desk-based bonuses;
- client origination percentages;
- personal billing formulas;
- team profitability allocations;
- fixed drawings with discretionary additions; and
- guaranteed minimum distributions.
Firm-wide profit linkage must be real
An LLP should be able to demonstrate how the member participates in the overall economic results of the business.
A remote or theoretical connection to firm profits may not be enough where the practical remuneration formula is driven mainly by individual metrics.
The agreement, internal accounts and actual payment history should tell the same story.
Capital is not a simple solution
Condition C provides a separate route for remaining outside the salaried member rules.
Where a member contributes capital equal to at least 25% of expected disguised salary, Condition C will not be satisfied.
Contributions must be genuine
Capital should represent a real contribution to the LLP.
Temporary funding, circular arrangements or artificial contributions designed mainly to avoid the legislation may be challenged under the anti-avoidance rules.
HMRC’s manual contains specific guidance on genuine finance, non-recourse loans, connected-party finance and combined loan facilities.
Condition C must be monitored
The test can change where remuneration or capital changes.
A member who initially contributes enough capital may later fall within Condition C following an increase in expected disguised salary or a reduction in capital.
Annual reviews should therefore cover all three conditions rather than rely on the original admission terms.
Firms beyond hedge funds
The judgment arose from an investment management business, but the statutory rules apply across UK LLP sectors.
Asset and investment managers
Portfolio managers often hold substantial investment authority but limited rights over firm governance.
Their remuneration may also be linked to individual fund or portfolio performance rather than the LLP’s overall results.
BlueCrest directly exposes the weakness of relying on those factors alone.
Trading firms
Traders and desk heads may control capital, risk limits and strategy within their desks.
Firms should establish whether that authority arises from membership rights and whether it concerns a sufficiently important part of the LLP’s affairs.
Advisory boutiques
Corporate finance, compliance, consulting and specialist advisory LLPs often reward members by reference to personal billings or transactions completed.
Such formulas may satisfy Condition A despite being described as profit participation.
Professional services firms
Law firms, accountancy practices and consultancies commonly use fixed-share or junior membership tiers.
Members may have partner titles and client responsibility while holding limited voting rights, low capital and remuneration resembling salary.
These structures should be reviewed individually.
Owner-managed businesses
The rules also apply to trading companies and family businesses operated through LLPs.
A family member who works full-time, receives fixed drawings and has little influence may fall within the salaried member rules even where they are formally admitted as a member.
Review priorities after BlueCrest
LLPs should assess each member separately and retain evidence supporting the conclusion.
The review should cover:
- Expected annual remuneration.
- The proportion linked to overall LLP profits or losses.
- Fixed drawings and guaranteed amounts.
- Individual, team or portfolio performance formulas.
- Capital contributed by the member.
- Voting rights under the LLP agreement.
- Committee membership and delegated authority.
- Strategic and financial approval rights.
- Differences between written rights and actual practice.
- PAYE and National Insurance exposure.
- Open tax years and HMRC enquiry risk.
- Interest, penalties and cash-flow consequences.
A change to one condition may not solve the issue where the other two remain satisfied.
Historic exposure may be substantial
The BlueCrest assessments demonstrate the potential scale of LLP classification disputes.
Where members are treated as employees for tax purposes, the LLP may face liabilities for:
- PAYE income tax;
- employer and employee National Insurance;
- interest;
- penalties; and
- administrative corrections.
Businesses should also consider whether historic assumptions were based on HMRC guidance that is now inconsistent with the Supreme Court’s interpretation.
That does not automatically remove liability. It may, however, be relevant when assessing reasonable care, penalties and the management of any disclosure to HMRC.
UK LLP structures remain viable
The judgment does not remove the commercial or legal benefits of an LLP.
It confirms that LLP membership and partner tax treatment are separate questions.
A defensible structure should align:
- the LLP agreement;
- practical decision-making;
- remuneration linked to the firm’s overall results;
- genuine capital participation; and
- contemporaneous evidence of how the business operates.
Businesses should avoid last-minute amendments that create rights on paper without changing the member’s real position.
Legasset supports businesses with LLP structuring, governance documentation, cross-border corporate planning and transaction implementation. UK tax classification should be reviewed with appropriately qualified UK tax counsel or tax advisers, particularly where historic PAYE and National Insurance exposure may arise.
FAQ: BlueCrest and UK LLP tax treatment
What did the Supreme Court decide?
The Supreme Court unanimously dismissed BlueCrest’s appeal.
It confirmed HMRC’s interpretation of the disguised salary rules and held that the relevant portfolio managers did not possess sufficient significant influence under Condition B.
How much was the BlueCrest dispute worth?
The assessments totalled approximately £197.3 million.
This comprised approximately £142 million in PAYE determinations and £55.3 million in Class 1 National Insurance contributions.
Are all LLP members now employees?
No.
An LLP member is treated as an employee for tax purposes only where Conditions A, B and C are all satisfied.
The result must be assessed separately for each member.
Does the ruling change employment rights?
Not automatically.
The salaried member legislation concerns income tax and National Insurance. Employment status for unfair dismissal, holiday pay, pensions and other rights may be governed by different tests.
What counts as disguised salary?
Disguised salary generally includes fixed remuneration and variable remuneration that is not sufficiently linked to the LLP’s overall profits or losses.
Pay based on personal performance, individual billings or portfolio results may still fall within Condition A.
What is significant influence?
Significant influence concerns meaningful influence over the LLP’s affairs.
Following the Supreme Court judgment, the influence must arise from the mutual rights and duties governing the LLP relationship. Operational importance alone is insufficient.
Must influence cover the whole LLP?
Not necessarily.
Influence over an important part of the LLP’s affairs may qualify, depending on the member’s rights and the commercial significance of that area.
Is HMRC’s guidance current?
Not fully.
As of 17 July 2026, HMRC’s Condition B guidance had not been updated after the Supreme Court judgment of 1 July 2026. Existing references to influence over the LLP “as a whole” should be read subject to the Court’s decision.
Can an LLP increase member capital?
A genuine capital increase may affect Condition C.
It should not be treated as an automatic solution. Funding arrangements, expected remuneration and anti-avoidance provisions require review.
Which LLPs should review their structure?
Investment managers, trading firms, law firms, accountants, consultants, advisory boutiques, private equity firms and other businesses with junior or fixed-share members should review their arrangements.
Topic-Specific Official Resources and Regulatory Materials
Official Supreme Court judgment dated 1 July 2026 interpreting Conditions A and B of the UK LLP salaried member legislation and dismissing BlueCrest’s appeal.
II. UK Supreme Court — BlueCrest judgment press summary
Official summary of the unanimous decision, the statutory questions before the Court and the principal reasons for dismissing the appeal.
III. UK Legislation — Section 863A of the Income Tax (Trading and Other Income) Act 2005
Current statutory starting point for determining when an individual LLP member is treated as a salaried member for UK income tax purposes.
IV. UK Legislation — Finance Act 2014, Schedule 17
Legislation introducing the LLP salaried member rules, including Conditions A, B and C and related amendments to the UK tax framework.
V. HM Revenue & Customs — Partnership Manual salaried member rules
HMRC’s central guidance index covering disguised salary, significant influence, capital contributions, anti-avoidance and implementation of the salaried member legislation.
VI. HM Revenue & Customs — Condition B significant influence guidance
HMRC’s current Condition B guidance. As of 17 July 2026, this section had not been updated after the Supreme Court judgment and must be read subject to the Court’s authoritative interpretation.
VII. HM Revenue & Customs — Types of influence relevant to Condition B
HMRC examples of strategic, financial and governance decisions that may indicate significant influence, including member appointments, business planning and major commitments.
Check Our Available Ready-Made Licenses
Below are all the off-the-shelf license options available for purchase. Browse through the list of licenses and read the details to choose the option that is right for your business:
