Partner or pretender? The Supreme Court redraws the line for LLP members

On 1 July 2026, the Supreme Court handed down its judgment in HMRC v BlueCrest Capital Management (UK) LLP [2026] UKSC 18, unanimously dismissing BlueCrest’s appeal in the first case on the ‘salaried member’ rules to reach the UK’s highest court.  BlueCrest remains exposed to PAYE determinations of approximately £142m and Class 1 national insurance contributions of around £55.3m for the tax years 2014 to 2019 – although the question of which individual members are actually caught now returns to the First-tier Tribunal for reconsideration, on the existing evidence but applying the law as the Supreme Court has now settled it.

Companies House counted 52,109 LLPs on the UK register at 31 March 2025 – fund managers, corporate finance houses, law and accountancy firms and a good number of tech and media ventures among them – so the ripples will travel well beyond Mayfair and the fund world, particularly for LLPs whose members are paid on a fixed, formulaic or individual-performance basis.  The judgment is also more nuanced than the day-one headlines suggested: HMRC won and the Supreme Court found no error in much of the Court of Appeal’s approach, but its reasoning clarifies that approach in ways that give well-advised LLPs something to work with.

Salaried member rules

Members of an LLP are, by default, taxed as self-employed partners – which means, among other things, no employer national insurance contributions on their profit shares.  At the current 15% employer Class 1 NIC rate, that is the prize for today’s structures; and the cost of getting it wrong.

The Finance Act 2014 inserted the salaried member rules into the Income Tax (Trading and Other Income) Act 2005 to catch members who are, in substance, employees.  A member is treated as an employee only if all three of the following conditions are met:

Condition A – it is reasonable to expect that at least 80% of the member’s remuneration will be ‘disguised salary’: amounts that are fixed, that vary without reference to the overall profits or losses of the LLP, or that are not in practice affected by them;

Condition B – the mutual rights and duties of the members and the LLP do not give the member ‘significant influence’ over the affairs of the partnership; and

Condition C – the member’s capital contribution is less than 25% of their expected disguised salary.

Fail any one of the three and the member stays outside the rules.  In BlueCrest it was common ground that every individual member met Condition C, so the entire dispute – through four levels of court over four years – turned on Conditions A and B.  That alone is a lesson in structuring: a sufficient capital contribution, properly structured and at genuine economic risk, could have taken Conditions A and B out of the fight altogether.

Condition A: the profits cap that never bit

BlueCrest’s portfolio managers and desk heads were paid discretionary allocations calculated on the profits of their own book or desk – typically around 18% of net profits.  BlueCrest argued this was not disguised salary because a policy existed to scale allocations back if the firm’s total profits ever fell short.  In practice, the cap was never triggered.

The Supreme Court gave that argument short shrift, as had every court below.  The purpose of Condition A is to distinguish a partner’s share of the firm’s profits from an employee’s performance pay, and remuneration driven by an individual P&L does not become a share of partnership profits because a theoretical firm-wide cap sits above it.  The practical takeaway is that, to fail Condition A, more than 20% of a member’s expected remuneration must be genuinely and substantively linked to the overall profits of the LLP.  How strong that link must be in marginal cases is a question the Court did not need to explore, so some uncertainty remains at the edges – prudently, firms should not design to the margin.

Condition B: the three questions that now matter

The centre of gravity of the judgment is Condition B, and the Court’s analysis effectively asks three questions in sequence.

First, where does the influence come from?  Only ‘qualifying influence’ counts: influence that derives from legally enforceable rights and duties.  Importantly – and here the Supreme Court addressed a point the Court of Appeal had not explored – those rights need not sit on the face of the LLP agreement itself.  Implied terms, common law and equitable duties, delegated authority, committee appointments and appointment to a specific role can all be sources of qualifying influence, provided the right or duty can ultimately be traced back to the LLP agreement.  An ‘entire agreement’ clause does not shut those routes off.  What does not count, however real it feels in the room: influence from stellar performance, a big book, rainmaking, client relationships, experience, seniority or force of personality.  The star trader who is always listened to, but holds no enforceable right to be, has no qualifying influence at all.

Second, influence over what?  The influence must be over the affairs of the LLP viewed as a whole – an expression carrying the widest meaning.  Running part of the business, even the core profit-generating part, on a day-to-day operational basis is not enough.  The focus is likely to be on managerial or strategic decision-making, although the Court was careful not to make that an absolute rule.  Helpfully for founder-led and group-owned structures, the Court also confirmed that reserved powers or vetoes held by one member – a founder, say, or a corporate member – do not prevent the other members from having significant influence over the affairs generally.

Third, is the influence significant?  Influence is a lower bar than control: a member need not be able to determine outcomes but must have the right to participate in important decisions through meaningful voting or other rights.  ‘Significant’ adds intensity – the Court endorsed the Court of Appeal’s formulation of influence with ‘practical and commercial substance in the conduct of those affairs in the real world’.  And in an interesting wrinkle, non-qualifying influence is not wholly irrelevant: the looming presence of a dominant founder such as Michael Platt, whose sway derived from roles outside the LLP’s own framework, still bears on whether the qualifying influence of the actual members was significant.

Why BlueCrest’s members were always in trouble

Read against that framework, the LLP agreement did BlueCrest’s members no favours.  Management and control of the business sat entirely with a two-person board.  Individual members were entitled to a single guaranteed members’ meeting each year, consultation only on such matters as the board saw fit, and information rights limited to what they needed for their own tax returns.  On any vote, each individual member held one vote while a corporate member held one hundred – so the individuals could always be outvoted.  Against that constitutional reality, the tribunals’ earlier findings that senior portfolio managers wielded significant influence rested on exactly the kind of de facto, performance-based clout the statute does not recognise.

Two footnotes from the facts are worth pinning to the noticeboard.  HMRC accepted from the outset that the four members of the original executive committee had significant influence – genuine governance roles, properly constituted, do work.  And when it became apparent that HMRC attached weight to committee membership, fifteen further members were formally appointed to the executive committee mid-dispute.  Retro-fitting governance once the enquiry has started is unlikely to impress anyone; building it properly beforehand is the whole game.

What happens next

The case returns to the First-tier Tribunal, with no new evidence permitted, so the final position of individual BlueCrest members is not yet settled.  More broadly, HMRC’s published guidance will need revisiting where it suggests that influence can be assessed by looking at how the LLP operates in practice, untethered from enforceable rights and duties – for a decade that had been the shared working assumption of taxpayers and HMRC alike, and it has not survived the Court of Appeal and the Supreme Court.  Whether taxpayers who arranged their affairs in reliance on that historic guidance can hold HMRC to it for past periods is a separate and uncomfortable question for another day – there is no automatic assumption that a taxpayer has a right or legitimate expectation. BlueCrest’s own judicial review proceedings, notably, have been stayed pending the tax appeals.

Industry bodies AIMA and the MFA, who intervened in the appeal, pressed the need for certainty; BlueCrest itself described the UK ‘no longer a serious contender’ as a place to do business.  The ruling also lands amid a wider run of HMRC successes on LLP and partnership tax structures, as reported by the Financial Times – against Boston Consulting Group in January, on the income treatment of payments to senior staff, and against XTX Markets founder Alex Gerko in June, on the tax treatment of profits allocated to individual traders through an LLP structure.  Neither was a salaried member case, but both show the direction of travel, and with payroll taxes already a sore point, expect HMRC’s compliance teams to make full use of this judgment.

Why this matters to the venture tech ecosystem

Readers might be tempted to file this one under ‘hedge fund problems’.  That would be a mistake.

Fund managers – many UK VC and growth fund managers operate through LLPs or use LLPs within the wider management and carry structure, and plenty have relied on the significant influence of senior investment partners to keep them outside the rules.  After BlueCrest, the questions are concrete.  Who sits on the top constitutional body, and what does the LLP agreement actually give them?  Do investment committees and other sub-committees have terms of reference that trace their authority back to the LLP agreement?  Where partners’ remuneration is referable primarily to their own deals or coverage area rather than the overall profits of the manager, does more than 20% of the package genuinely track firm-wide performance?  Founder vetoes and reserved matters, mercifully, are not fatal to everyone else’s position.

Professional practices and advisory boutiques – corporate finance houses, consultancies and multi-partner advisory firms structured as LLPs should revisit how fixed shares, bonuses and discretionary allocations are calculated, and whether members treated as partners hold real, enforceable governance rights or merely respected opinions.

Tech ventures using LLPs – less common, but LLPs do appear in tech structures (joint ventures, management vehicles, carry partnerships).  The same analysis applies wherever individuals are members.

What to do now

First, map your members.  For each individual member, work through Conditions A, B and C honestly and on the law as it now stands, not on the more generous tribunal decisions that have now been swept away.

Second, look hard at remuneration mechanics.  If Condition A is the escape route, the link between a member’s package and the overall profits of the LLP must be genuine and substantive – an individual P&L with a purely decorative firm-wide cap will not do.

Third, if you rely on Condition B, embed the influence so that it can be traced.  Put strategic decision-making rights, committee terms of reference and the responsibilities of key roles into, or formally under, the LLP agreement – and then operate the governance as written.  Minutes and appointment documents are the evidence you will one day need.

Fourth, consider Condition C.  It was conceded in BlueCrest and untouched by the judgment, and for many firms a genuine capital contribution of at least 25% of expected disguised salary – at real economic risk to the member – remains the cleanest route to certainty.  Expect HMRC to probe loan-funded arrangements carefully.

Finally, do not wait for the brown envelope.  The exposure is back taxes, employer NICs at 15%, interest and potentially penalties, and payroll processes need to reflect the analysis before, not after, an enquiry.  A structured review now is considerably cheaper than a compliance letter later.

If you manage a fund through an LLP, or you are a member of one, and you would like help stress-testing your structure against the judgment, do get in touch with the HLaw team.

All the thoughts and commentary that HLaw publishes on this website, including those set out above, are subject to the terms and conditions of use of this website.  None of the above constitutes legal advice and is not to be relied upon.  Much of the above will no doubt fall out of date and conflict with future law and practice one day.  None of the above should be relied upon.  Always seek your own independent professional advice.

Humphreys Law