A recent Supreme Court judgment has provided important clarification on the tax treatment of members of limited liability partnerships (LLPs), with potentially significant implications for professional services and other businesses operating through LLP structures.
The judgment in HMRC v BlueCrest Capital Management (UK) LLP, handed down on 1 July 2026, centred on the salaried members rules and, in particular, what it means for an LLP member to have “significant influence” over the affairs of the partnership.
Although the case concerned an investment management business, the principles established by the Supreme Court have much wider relevance. LLPs in sectors including accountancy, law, consultancy and other professional services may now want to revisit the tax status of their members and the governance arrangements that underpin it.
Nicholas Smith, Head of Tax at Duncan & Toplis, explains what the ruling means and the areas LLPs should consider reviewing.
LLPs combine limited liability with a partnership structure and, historically, individual members have generally been taxed as self-employed partners.
However, the government introduced the salaried members rules in 2014 to address situations where individuals were members of an LLP in name, but their relationship with the business had characteristics closer to employment.
Under the legislation, an LLP member is treated as an employee for income tax and National Insurance purposes where all three of the following conditions are met:
A member only needs to fail one of these conditions to fall outside the salaried members rules and retain their tax treatment as a partner. The BlueCrest litigation principally concerned Conditions A and B; Condition C was not before the Supreme Court.
BlueCrest argued that certain investment manager members exercised significant influence because they were responsible for substantial amounts of capital and made commercially important investment decisions.
The Supreme Court unanimously dismissed BlueCrest's appeal.
Importantly for other LLPs, the Court found that the type of influence relevant to Condition B must derive from the legally enforceable rights and duties governing the LLP and its members.
Informal influence, personal standing within the organisation or an individual's commercial importance to the business is not enough on its own.
Nicholas Smith said: “The distinction the judgment draws is important. Someone can be extremely senior, generate substantial revenue or have considerable influence in practice, but that does not necessarily mean they have the type of significant influence required by the legislation.
“LLPs therefore need to look beyond job titles and what happens operationally in terms of the strategic management of the business and consider where a member's authority actually comes from and the extent of their influence over the affairs of the LLP.”
The judgment is particularly relevant because many LLPs have developed management structures in which strategic decision-making is concentrated among executive boards, management committees or a relatively small group of senior partners.
Other members may manage significant teams, client relationships or areas of the business without having equivalent rights over the LLP's affairs more generally.
The Supreme Court confirmed that “significant influence” does not require control. A member can have sufficient influence through meaningful rights to participate in important decisions.
However, that influence needs to have practical and commercial substance and relate to the affairs of the LLP viewed as a whole. Simply exercising day-to-day operational responsibility for an important part of the business will not necessarily be sufficient.
This means LLPs should be careful about assuming that a senior title, responsibility for a major division or strong commercial performance automatically means Condition B is failed.
For LLPs, the immediate lesson from BlueCrest is the importance of understanding how the salaried members rules apply to the reality of their structure.
Nicholas said: “I don't think the response should be to make assumptions based on an individual's status within the business. The sensible approach is to review the three conditions systematically and make sure the tax treatment of each member can be supported by the underlying facts and documentation.”
Areas worth reviewing include:
The judgment does not mean every LLP member outside the main management team should automatically be treated as an employee. The salaried members legislation contains three separate tests, and each member's circumstances need to be considered against all three.
The financial consequences can be substantial.
If HMRC successfully determines that an individual treated as a self-employed LLP member actually falls within the salaried members rules, the LLP can face PAYE and employer National Insurance liabilities, alongside interest and potential penalties.
The scale of the BlueCrest dispute demonstrates the potential exposure. HMRC had issued PAYE determinations totalling approximately £142 million and a Class 1 National Insurance decision of approximately £55.3 million covering five tax years.
Not every LLP will face anything approaching those figures, but the case illustrates why member status is much more than a technical tax issue.
The attention generated by BlueCrest has understandably focused on significant influence, but LLPs should not lose sight of Conditions A and C.
Condition A looks at the nature of the member's remuneration, including the extent to which it genuinely varies with the LLP's overall profits and losses.
Condition C considers the member's capital contribution. Broadly, this condition is met where the contribution is less than 25% of the member's expected disguised salary.
Nicholas added: “BlueCrest gives us important clarification on Condition B, but that is only one part of the salaried members rules. An LLP reviewing its position should consider the complete picture – remuneration, influence and capital – rather than focusing solely on one test.”
The BlueCrest judgment does not introduce a new tax regime. The salaried members rules have been in place for more than a decade.
What it does provide is greater clarity around one of the areas that has historically been open to interpretation.
For LLPs that have not reviewed their salaried member position for some time - particularly those whose management structures, remuneration arrangements or membership have changed - this provides a timely reason to do so.
As Nicholas concludes: “LLPs evolve. People are promoted, responsibilities change, governance structures develop, and remuneration arrangements are revised. A tax analysis undertaken several years ago may therefore no longer reflect the organisation as it operates today.
“The BlueCrest decision is a useful prompt for LLPs to revisit their arrangements, understand how each of the three conditions applies to their members and address any areas of uncertainty before they become an issue.”
If you are an LLP and would like to discuss how the salaried member rules could apply to your members, or would like support reviewing your current arrangements following the BlueCrest judgment, please speak to Nicholas Smith or contact your usual Duncan & Toplis adviser.
