BlueCrest Capital Management (UK) LLP has suffered a major defeat after the Supreme Court unanimously dismissed its appeal in a tax dispute with HMRC worth nearly £200 million. The judgment could affect LLPs across the UK.
HMRC’s Near £200m Claim
The dispute covers five tax years from 2014/15 to 2018/19. HMRC issued PAYE determinations of approximately £142 million and a Class 1 National Insurance decision of approximately £55.3 million.
HMRC argued that all but four of BlueCrest’s members should be treated as employees, rather than self-employed partners.
The Three Key Tests
Under the salaried member rules introduced in 2014, an LLP member is taxed as an employee when three conditions are met. At least 80% of their pay must be disguised as a salary. They must lack significant influence over the LLP’s affairs. Their capital contribution must also be less than 25% of their disguised salary.
BlueCrest accepted that the third condition applied to every member involved. Its appeal focused on the first two tests.
Why BlueCrest Lost
BlueCrest claimed that bonuses paid to portfolio managers and desk heads were linked to the firm’s overall profits. The Supreme Court rejected this argument.
The judges found that the payments were calculated using profits generated by a portfolio or trading desk, not BlueCrest’s total profits.
Bonuses could be reduced if total allocations exceeded annual profit. However, the court ruled that this possible cap did not make the payments a genuine share of the partnership’s overall profits.
Influence Must Be Formal
BlueCrest argued that its successful managers had significant influence because they made important investment decisions and generated returns.
The judges said personal reputation, strong performance and informal managerial clout were not enough. Significant influence must come from enforceable rights granted through the LLP’s legal and contractual structure. BlueCrest’s board and executive committee held the main management powers. A corporate member had 100 votes, while each member had only one. Portfolio managers also had limited formal governance and information rights.
A Warning for LLPs
The significant influence question will now return to the First-tier Tribunal for reconsideration under the correct legal test. This means the final position of individual members still requires review, despite BlueCrest losing its Supreme Court appeal.
The ruling sends a clear warning to other LLPs. Calling someone a partner will not protect their tax status if their remuneration resembles a salary and their partnership agreement gives them little genuine control.
