Why your LLP agreement matters more than ever after HMRC v BlueCrest
For members of limited liability partnerships (LLPs), the UK’s salaried member rules have important tax consequences. A key aspect of these rules was clarified by the Supreme Court’s decision in HMRC v BlueCrest Capital Management (UK) LLP.
This is a cue for LLPs to review their governance and tax liability.
The salaried member rules
An individual member of a UK LLP is treated as a salaried member if all three conditions are met:
- Condition A: at least 80% of the member’s expected reward is ‘disguised salary’
- Condition B: the member does not have significant influence over the affairs of the LLP
- Condition C: the member’s capital contribution is less than 25% of their expected disguised salary
The regime is not a broad employment status test. It is a statutory test based on those three conditions.
Where the salaried member rules apply, the individual is treated as an employee for income tax purposes and the LLP must operate PAYE and account for employer National Insurance contributions (NICs).
What HMRC v BlueCrest decided
As BlueCrest shows, the wording and operation of the LLP agreement is particularly important for Condition B.
The question was whether certain members had significant influence over the affairs of the LLP. The Supreme Court confirmed that practical influence is not enough. The influence must come from legally enforceable rights and duties.
Those rights will usually be found in the LLP agreement, but may also arise from statute, implied terms or validly delegated authority under a binding governance framework. By contrast, influence based only on experience, seniority, reputation, client relationships or commercial importance will not satisfy Condition B.
The decision therefore narrows the reliance LLPs can place on informal or de facto influence. The starting point is the legal source of the member’s influence, not simply how important the person is to the business in practice.
Why LLP agreements now matter
The key message: influence must be grounded in the legal framework and not merely in seniority, commercial importance or day-to-day authority.
A senior individual may make key commercial decisions, but if that individual’s influence cannot be traced to enforceable rights in the LLP’s constitutional documents then the Condition B analysis may be weak.
Your LLP should review its:
- Agreements
- Side letters
- Delegated authority matrices
- Committee terms of reference
- Remuneration arrangements
- Capital contribution records
HMRC and the courts are likely to focus on what those documents actually say and whether they create enforceable rights.
Your review should cover all three conditions of the salaried member rules.
If Condition B is uncertain, you may need to consider whether remuneration is genuinely linked to overall LLP profits, or whether capital contributions are sufficient to avoid salaried member treatment.
How BKL can help
The salaried member rules remain complex, particularly where governance arrangements have not kept pace with how the firm operates in practice.
BKL’s transactional tax and employment tax specialists can help you review your LLP agreement, assess your tax liability and align your governance structures with your intended tax outcome.
For a conversation about how we can help you, get in touch with Emma Brown using the form below.
Contact Emma
Frequently asked questions: HMRC v BlueCrest (2026) and LLP arrangements
What are the LLP salaried member rules?
The LLP salaried member rules determine whether an LLP member is taxed as a self-employed partner or treated as an employee for tax purposes. An individual is classified as a salaried member if all three statutory conditions in sections 863A to 863G ITTOIA 2005 are met, relating to their remuneration, influence within the LLP, and capital contribution. If the rules apply, the LLP must operate PAYE and account for employer National Insurance contributions (NICs).
Why is the BlueCrest decision important for LLPs?
The Supreme Court’s decision provides important clarification on what counts as ‘significant influence’ under the salaried member rules. It confirms that influence must arise from legally enforceable rights and duties, rather than a person’s seniority, reputation, commercial importance or day-to-day role. This gives LLPs a clearer framework for assessing tax risk and reviewing their governance arrangements.
Can a senior LLP member still be treated as a salaried member?
Yes. Holding a senior title or managing key clients does not automatically mean a member has significant influence for tax purposes. Following BlueCrest, the crucial question is whether that influence is supported by enforceable rights under the LLP agreement or another binding governance arrangement. Without those rights, even highly influential individuals could potentially fall within the salaried member rules.
What documents should LLPs review after the BlueCrest ruling?
LLPs should review all documents that define governance and decision-making authority. This may include LLP agreements, side letters, delegated authority frameworks, committee terms of reference, remuneration policies and capital contribution records. Reviewing these documents together can help establish whether members have legally enforceable influence and whether the LLP’s structure supports its intended tax treatment.
Does the BlueCrest case mean practical influence no longer matters?
Not entirely, but practical influence on its own is unlikely to be sufficient. The Supreme Court emphasised that influence must be rooted in a legal right or obligation. An individual’s day-to-day responsibilities may still be relevant if they arise from a binding governance framework, but informal authority or commercial importance alone is unlikely to satisfy Condition B.
Does the BlueCrest decision have an impact on earlier case law?
Earlier cases such as Tiffin v Lester Aldridge LLP remain relevant to the wider distinction between partners and employees. However, BlueCrest is concerned with the specific statutory code in sections 863A to 863G ITTOIA 2005. The practical question is therefore not whether an individual looks like a partner in a broad commercial sense, but whether the statutory conditions are met.
What happens if an LLP member is caught by the salaried member rules?
If the rules apply, the member is treated as an employee for income tax purposes. The LLP must operate PAYE, deduct income tax and employee NICs, and pay employer NICs. This can create significant additional costs for the firm and may require changes to remuneration structures, governance arrangements or capital contributions.
Are professional services LLPs the only organisations affected?
No. While the rules often attract attention in law firms, accountancy firms and other professional partnerships, they apply to any UK LLP. Investment management businesses, property ventures, consulting firms, creative industry LLPs and other sectors should also consider whether their governance structures and member arrangements comply with the rules.
When should LLPs seek professional advice on salaried member status?
LLPs should consider obtaining advice when admitting new members, updating governance arrangements, changing remuneration structures, or undertaking a wider tax review. Advice can also be valuable where agreements have not been updated for several years or where the firm’s actual decision-making processes differ from its legal documentation. Regular reviews can help identify risks before they lead to HMRC challenges, unexpected PAYE liabilities or employer NIC costs.
