On 1 July 2026 the Supreme Court handed down HMRC v BlueCrest Capital Management (UK) LLP [2026] UKSC 18. BlueCrest’s appeal was dismissed unanimously. The litigation goes back to the First-tier Tribunal on the facts, but the law is now clear enough that every CFO with UK LLP members should stop waiting for “further guidance” and open the LLP agreement.
This is not a hedge-fund curiosity. The salaried member rules apply to every UK LLP with individual members — investment managers, law firms, accountancy practices, consulting partnerships, PE platforms and professional services groups. If you have been treating senior people as self-employed partners on the strength of commercial clout, client ownership or the size of the book they run, BlueCrest has narrowed the room you thought you had.
The case page is UKSC/2025/0028; the full judgment PDF is worth the read. Useful practitioner notes are already out from Deloitte, Latham & Watkins, Proskauer, Sullivan & Cromwell and Dechert. What follows is the CFO cut.
The Three Conditions
Under the salaried member rules in ITTOIA 2005 ss 863A–863G (Finance Act 2014), an individual LLP member is treated as an employee for income tax and National Insurance if all three conditions are met. Fail any one and the member stays a partner for tax purposes.
- Condition A (disguised salary): it is reasonable to expect that at least 80% of the member’s remuneration is fixed, or varies without reference to the overall profits or losses of the LLP.
- Condition B (significant influence): the mutual rights and duties of the members do not give the individual significant influence over the affairs of the LLP.
- Condition C (capital): the member’s capital contribution is less than 25% of their expected disguised salary for the year.
BlueCrest went to the Supreme Court on A and B. Condition C was not in issue, though HMRC’s TAAR approach to capital top-ups still matters for anyone tempted to paper over C with short-term funding.
Get it wrong and the cash cost is real: employer NICs at 15%, Growth and Skills Levy where it applies, interest, possible penalties, and the PAYE income tax and employee NICs the LLP should have withheld. On carried interest and employment-related securities the knock-on can be worse, because employee treatment can recharacterise the reward package.
Condition B: Legal Rights, Not Star Power
This is the heart of the judgment.
Before the Court of Appeal, many firms — and a fair reading of HMRC’s Partnership Manual PM256000 series — treated “significant influence” as a practical test. If a desk head ran a large capital allocation and drove firm P&L, that looked like influence. The FTT and Upper Tribunal accepted that for BlueCrest’s larger portfolio managers and desk heads.
The Court of Appeal rejected it. The Supreme Court has now affirmed that rejection and set a two-step test:
- Does the member’s influence derive from legally enforceable rights and duties under the contractual and statutory framework governing the LLP (mainly the LLP agreement, plus delegated authority or roles traceable back to that framework)?
- If yes, is that qualifying influence significant — with practical and commercial substance in the real world?
De facto influence from performance, seniority, client relationships or capital under management is not qualifying influence. It does not help you fail Condition B. Other people’s de facto power can even work against you, by making residual legal rights look insignificant.
Three further points matter in practice:
- Affairs of the LLP means high-level, not just operational. Day-to-day control of a portfolio, desk or business line — even a core one — is not enough. The Court leaned toward managerial or strategic decision-making about the partnership’s affairs.
- Influence is not control. You do not need a casting vote. A genuine right to participate in important decisions can be enough — if it is real.
- The test must work prospectively. Rights need to be clear enough to assess before the tax year starts. Vague consultation rights and annual town-hall votes will not carry the weight many firms hoped.
On BlueCrest’s facts, management sat with a board chosen by corporate members. One corporate member held 100 votes; individuals held one each and could not outvote it. Information rights were limited. Board or executive committee seats would fail Condition B for those appointed; limited reserved-matter and consultation rights for others looked, on their face, inconsistent with significant influence.
If your LLP agreement looks like that, stop relying on “the partners really run the place in practice.”
One uncomfortable side point from Sullivan & Cromwell: HMRC’s own guidance pointed taxpayers toward practice as well as paper, and both sides litigated on that basis for years. The appellate courts still held the guidance did not match the statute. Guidance is not law. Where you rely on it, record that reliance contemporaneously.
Condition A: Book P&L Is Not Profit Share
Condition A got less of the judgment’s length and almost as much of the economic damage.
BlueCrest’s discretionary allocations were calculated from individual or desk profits, then paid from total firm profits. BlueCrest argued that if firm profits were short, allocations would shrink, so pay varied by reference to overall profits.
Every court rejected that. A notional profits cap does not turn individual performance pay into a traditional partnership profit share. Condition A tracks the idea that partners share the firm’s profits and losses. Getting a slice of what you personally generated, subject only to there being enough money in the pot, fails that test.
For asset managers, PE houses and any LLP that pays on book, sleeve or originations, this is the quiet killer. Many structures that “felt partner-like” on Condition B were already vulnerable on Condition A. BlueCrest removes the last convenient ceiling argument.
Who Should Care Beyond Hedge Funds
- Investment management and PE LLPs that treated senior PMs, deal partners or desk heads as self-employed because they “clearly influence the business.”
- Professional services LLPs where equity sits with a small board or corporate member and most “partners” have consultation rights, not governance rights.
- Multi-LLP platforms where legal influence and commercial influence live in different entities.
- Groups with carried interest. From 6 April 2026, carried interest is trading income for income tax and Class 4 NICs under the regime HMRC restated in Agent Update 145. If the same people are recharacterised as employees under the salaried member rules, PAYE, ERS and carry need one integrated review, not two memos.
Deloitte’s list is the right one: rights under the LLP agreement, where management authority sits, whether delegated authority traces back to the agreement, and how votes are weighted.
What To Do This Quarter
- Inventory members and open years. Who is treated as a partner, on which condition, for which years? Flag large discretionary allocations, carry and ERS.
- Read the LLP agreement like HMRC will. Board composition, executive committees, reserved matters, voting weights, information rights, every delegation. Then map who actually sits on those bodies.
- Re-test Condition A on real numbers. Rebuild expected remuneration. If 80%+ is fixed, bonus-like or book-driven without a genuine firm-wide profit-and-loss share, Condition A is met.
- Quantify employer NIC and PAYE exposure. Include interest and penalty ranges, and the employee-side cash flow if members have been on Class 2/4 and self-assessment.
- Restructure only if it is real. Genuine long-term commercial change can still take people outside the rules. Cosmetic top-ups and paper influence will not. Any change needs a commercial rationale that survives a purpose test.
- Align payroll, ERS and carry. If status flips, share schemes, carry vehicles, bonus deferral and pensions all move. One answer, not three.
- Document the file for open years. Even if you hold the line, show you applied the UKSC 18 test to your actual rights and pay mechanics.
BlueCrest does not automatically make every portfolio manager an employee. Real board seats with legal authority can still fail Condition B. Genuine firm-wide profit sharing can still fail Condition A. Adequate long-term capital can still fail Condition C. It also does not end BlueCrest’s own facts fight at the FTT, and related judicial review may still surface questions about reliance on HMRC guidance.
But the interpretive wind has shifted. Partner tax treatment follows legal rights and firm-wide economics, not star status. Running a big book is not significant influence. Hitting a personal P&L target is not sharing partnership profits.
Open the agreement. Rebuild the pay waterfalls. Put a number on the NIC. Then decide, with eyes open, whether you still have partners — or employees you have been mislabelling.
Mark Hendy is a PE-facing CFO and the principal of Tanous Limited. This article is general information, not advice on any specific LLP, member or open year.