Commissioners for His Majesty’s Revenue and Customs v BlueCrest Capital Management (UK) LLP [2026] UKSC 18

The Supreme Court considered whether members of BlueCrest, a hedge fund LLP, should be treated as employees under the salaried members legislation. The Court dismissed BlueCrest's appeal on both Conditions A and B, upholding remittal to the First-tier Tribunal.

Facts

BlueCrest Capital Management (UK) LLP is a UK limited liability partnership within the BlueCrest Group, providing investment management and back-office services to Group funds. HMRC formed the view that, for tax years 2014–2019, all but four members (the original executive committee) of BlueCrest fell within the ‘salaried members’ legislation in sections 863A–863G of the Income Tax (Trading and Other Income) Act 2005 (inserted by the Finance Act 2014). HMRC accordingly issued PAYE determinations of approximately £142m and a Class 1 NICs decision of approximately £55.3m.

The individual members were divided into three categories: infrastructure members (back-office); portfolio managers (with discretionary capital allocations); and other front-office members. Portfolio managers were allocated risk-based capital and remunerated by three elements, including ‘discretionary allocations’ calculated by reference to the profits of their own portfolios or desks, subject to a policy cap by reference to BlueCrest’s total profits (which never operated in practice).

Governance was vested in the Board under clause 14 of the LLP Agreement, with delegation to UK ExCo. Individual members had minimal voting and information rights. Mr Platt, the co-founder and principal investor, wielded significant influence in his capacity as CEO/CIO of the Jersey General Partner and via Group ExCo, but was not himself a member of BlueCrest.

Issues

The salaried members legislation deems a member of an LLP to be an employee for tax purposes only if Conditions A, B and C are all met. Condition C was conceded. The issues were:

• Condition A: whether it was reasonable to expect that at least 80% of the amounts payable to portfolio managers and desk heads would be ‘disguised salary’ – specifically, whether their discretionary allocations were ‘variable but varied without reference to the overall amount of the profits or losses’ of BlueCrest (section 863B(3), paragraph (b)).
• Condition B: the correct interpretation of the requirement that the ‘mutual rights and duties of the members’ do not give the member ‘significant influence over the affairs of the partnership’ (section 863C), and its application to portfolio managers and desk heads.

Arguments

BlueCrest

On Condition A, BlueCrest argued that the policy under which discretionary allocations were capped by BlueCrest’s total profits meant the allocations were ‘varied with reference to’ overall profits or losses, so paragraph (b) was not satisfied. On Condition B, BlueCrest submitted that portfolio managers with allocations of $100m or more, and desk heads, had significant influence rooted in their formal roles under the LLP Agreement, both externally (binding the Fund to trades) and internally (through duties in clause 19 and delegated authority). It challenged the Court of Appeal’s focus on strategic decision-making and its remittal order.

HMRC

HMRC argued that discretionary allocations were calculated by reference to individual or desk-level performance, not overall LLP profits, so Condition A was satisfied. On Condition B, HMRC contended that qualifying influence must derive from mutual legally enforceable rights and duties, not de facto or personal influence, and must relate to the affairs of the LLP as a whole.

Interveners

AIMA and MFA emphasised the need for clarity and certainty in the application of the conditions for taxpayers and advisers.

Judgment

Approach to interpretation

The Court applied orthodox principles of statutory interpretation, giving primacy to the statutory words read in context and in light of purpose. The pre-legislative material demonstrated that the legislation was designed to address the disparity in tax treatment between LLP members and traditional partners and to counter disguised employment through LLPs. The three conditions collectively encapsulate typical indicators of traditional partnership drawn from the common law (as reflected in Stekel v Ellice [1973] 1 WLR 191 and Tiffin v Lester Aldridge LLP [2012] EWCA Civ 35), though they are not identical to the common law test. The conditions must be capable of prospective, objective application.

Condition B

The Court held that the qualifying influence must derive from legally enforceable mutual rights and duties of the members inter se and between the members and the LLP, sourced in the LLP agreement, statute, or other legal or equitable framework. Qualifying influence can extend to rights arising from delegated authority or appointment to specific roles, provided these can be traced back to the LLP agreement. Conversely, de facto influence, soft power, influence derived from personal qualities, performance in a role, financial contribution to profits, or client relationships does not qualify (though it may be relevant to whether qualifying influence is ‘significant’).

‘Significant’, ‘influence’ and ‘affairs’ are ordinary English words not to be paraphrased. Influence connotes the power or ability to affect the LLP’s affairs, falling short of control. ‘Significant’ adds intensity: a degree of influence with practical and commercial substance in the real world. ‘Affairs of the partnership’ bears a broad meaning, viewed as a whole, and the influence must relate to the partnership’s affairs generally (typically involving strategic or managerial decision-making), not merely operational decisions in one part of the business.

The FTT had erred in law by treating de facto influence as sufficient, by focusing on personal qualities and financial contribution, and by treating operational decisions in a portfolio manager’s own book as significant influence over the affairs of the LLP. The FTT had failed to conduct a proper analysis of the LLP Agreement, under which management was vested in the Board (which did not include portfolio managers), members had minimal voting and information rights, and the corporate member BCUKL held 100 votes to each individual member’s one. The Court of Appeal was correct to remit the matter to the FTT.

Condition A

The Court held that the discretionary allocations were calculated by reference to individual portfolio or desk profits and were not varied by reference to the overall profits or losses of BlueCrest. The policy cap at total LLP profits, which had never operated in practice, did not alter that conclusion. While BlueCrest’s argument could ‘just about pray in aid a literal reading of paragraph (b)’, it was divorced from purpose and ordinary language. Condition A was accordingly met.

Implications

The decision provides important clarification of the salaried members legislation for LLPs, particularly in financial services and professional firms:

• For Condition B, qualifying influence must have an identifiable source in the LLP’s legally enforceable governance framework (including delegated authority and appointment to formal roles traceable back to the LLP agreement). De facto or informal influence, personal qualities, revenue-generation, and performance-based influence are irrelevant to the source question, though they may be relevant to whether the qualifying influence is ‘significant’.
• The relevant influence must be over the LLP’s affairs as a whole, typically at managerial or strategic level; operational decision-making within a discrete part of the business will generally not suffice.
• For Condition A, remuneration structures calculated by reference to individual or team performance, rather than the overall LLP profits, will generally fall within paragraph (b) as ‘disguised salary’, even where a theoretical cap by reference to overall profits exists.
• The judgment reinforces that the three conditions are to be applied prospectively and objectively, giving taxpayers and HMRC the certainty required.
• The decision is significant for hedge funds, asset managers, and professional service LLPs whose members hold discretionary allocations or specialist roles, and for the drafting of LLP agreements where members intend to retain genuine partnership status.

The appeal was dismissed on both Conditions A and B, and the matter of Condition B remains remitted to the First-tier Tribunal for reconsideration on the correct legal test, with the parties confined to the existing evidence.

Verdict: The Supreme Court dismissed BlueCrest’s appeal on both Condition A and Condition B. The Court of Appeal’s order remitting the Condition B issue to the First-tier Tribunal for reconsideration in light of the correct construction was upheld, with amendment only to include reference to the Supreme Court’s judgment.

Source: Commissioners for His Majesty's Revenue and Customs v BlueCrest Capital Management (UK) LLP [2026] UKSC 18