Tax

On 1 July 2026, the Supreme Court handed down its long-awaited judgment in HMRC v BlueCrest Capital Management (UK) LLP [2026] UKSC 18 on the application of the salaried member rules, dismissing BlueCrest’s appeal and upholding the Court of Appeal decision to remit the case to the First-tier Tribunal. As discussed in our most recent UK Tax Digest, this case considered the rules for assessing whether an LLP member should be taxed as a self-employed partner or, instead, reclassified as a “salaried member” and taxed as an employee. The case brought by BlueCrest before the Supreme Court focused on two aspects of the salaried member rules:

• Condition A – pursuant to which at least 80% of a member’s remuneration from the LLP must be “disguised salary” in order to reclassify them as a salaried member – that is, remuneration that is (i) fixed, (ii) variable but without reference to the LLP’s overall profits or losses, or (iii) not in practice affected by the overall amount of those profits or losses; and
• Condition B – pursuant to which the mutual rights and duties of the LLP members must not give a member significant influence over the affairs of the LLP in order to reclassify that member as a salaried member.

Condition C, which relates to the size of a member’s capital contribution to the LLP, was not in issue in the case and was not, therefore, considered.

The First-tier Tribunal now has to apply the test as clarified by the Supreme Court to decide which BlueCrest members, if any, in fact had significant influence over the LLP’s affairs.

While the judgment includes thorough analysis of the relevant issues, in this post we wanted to highlight the most important points to take away.

Condition A

1) Variability means more than limited by total profits – perhaps unsurprisingly, the Supreme Court confirmed that when testing whether a sum is variable by reference to, and affected by, the LLP’s overall profits, it is not enough to say that the allocation cannot be made if there are insufficient overall profits to do so. In other words, if all that can be said regarding an LLP member’s remuneration is that they cannot receive a profit allocation if the LLP has insufficient overall profits, such that the LLP’s profits act as a cap on an LLP member’s remuneration, then that alone is not enough for the member to fail Condition A.

Condition B

2) Influence must be “qualifying” – the Supreme Court agreed with the Court of Appeal that when testing whether an individual fails Condition B, their influence is taken into account only insofar as it is “qualifying” – i.e. it must be given by legally enforceable mutual rights and duties of the LLP members. De facto influence given by means of an individual’s personal qualities, relationships, reputation, or commercial significance to the LLP’s business, no matter how significant, is not relevant for these purposes.

A member who has this type of de facto influence but does not have it as a matter of the legally enforceable rights and duties of the members, typically (albeit not necessarily) provided for under the LLP agreement, does not fail Condition B and would therefore not be prevented from being taxed as a salaried member unless they fail either of the other Conditions.

The Supreme Court’s conclusion will be disappointing to many taxpayers as it is contrary to the substance-over-form approach to Condition B taken by the First-tier Tribunal and Upper Tribunal which, until now, and notwithstanding the subsequent Court of Appeal decision, has been commonly accepted by the industry and by many advisers and, significantly, was endorsed by HMRC in their own published guidance. It is expected that HMRC will now need to update that guidance in light of the Supreme Court’s decision. One open question is whether HMRC will also look to re-examine arrangements that previously would have fallen on the right side of the line as being consistent with their published position.

3) Clarification on when influence is “qualifying” – the Supreme Court expanded on the Court of Appeal’s reasoning to offer helpful clarification on what counts as qualifying influence. In particular:

1. while the LLP agreement is the starting point and “ultimate source” of the member’s mutual rights and obligations, it is not necessarily the exclusive source. Indeed, qualifying influence may derive from alternative sources even if the LLP agreement includes an “entire agreement” clause;
2. even within the LLP agreement, an individual’s influence does not need to be explicitly spelled out in order to qualify; it can also derive from an authority delegated under that agreement or by virtue of appointment to a specific role. The key is that the relevant influence must ultimately be traceable to legally enforceable rights and duties; and
3. the Supreme Court reconfirmed that influence is not the same as control. An individual can hold qualifying influence (and can therefore potentially fail Condition B) even if they cannot necessarily dictate the LLP’s affairs and even if their influence is subject to another person’s overriding veto rights or reserved powers.

4) A two stage test with a double standard – the Supreme Court decision suggests that Condition B must be applied using a two stage test – specifically:

• Stage (1): ascertain whether the member has qualifying influence, and
• Stage (2): determine whether that qualifying influence represents significant influence over the affairs of the LLP.

The Supreme Court also agreed with the Court of Appeal that, when applying the second stage of this test, the influence of another person is potentially relevant irrespective of whether it is qualifying or not. In other words, a member’s qualifying influence may fail to be significant if it is, in practice, rendered insignificant by the qualifying or non-qualifying influence of another person. This is particularly relevant to businesses where the affairs of the LLP are ultimately directed via the overwhelming de facto influence of another person.

5) High threshold for testing when influence is “significant” – the Supreme Court agreed with the Court of Appeal’s narrow interpretation of “significant influence”. In particular, the Supreme Court confirmed that:

1. one must “start by considering what the LLP does in carrying on its business”;
2. in the context of the LLP’s business, the influence must give the member a voice in the management of the affairs of the LLP as a whole; day-to-day decision-making on an operational level is not likely to qualify, particularly if only in relation to a part of the business (even if a core part); and
3. the influence must have “practical and commercial substance in the conduct of those affairs in the real world” – in other words, token qualifying influence is not sufficient.

This decision provides welcome clarity, but sets a demanding standard for those LLPs seeking to keep members outside of the salaried member rules by relying on their purported significant influence. For many businesses, it will be prudent to revisit their LLP agreements in order to review whether their members’ influence falls within the Court’s more restrictive interpretation of the rules and, if not, whether either of the other Conditions is capable of being failed to prevent the member from being a salaried member.