The Commissioners for HMRC v BlueCrest Capital Management (UK) LLP

The salaried-members provisions require their statutory conditions to be applied to the facts of the particular limited liability partnership. Condition B is not confined to influence over the partnership’s affairs as a whole, or to managerial influence. Significant influence may arise from financial, operational or managerial responsibility, including de facto influence. The inquiry is fact-sensitive and admits no rigid test or gloss. For Condition A, a remuneration arrangement is not removed from disguised salary merely because allocations, once calculated, cannot be paid beyond available profits. The relevant remuneration must itself be variable by reference to, or in practice affected by, the partnership’s overall profits or losses. Appellate challenges to the First-tier Tribunal’s factual evaluations face a high threshold.

HMRC appealed against the First-tier Tribunal’s decision concerning the application of the salaried-members rules to members of BlueCrest Capital Management (UK) LLP for the tax years 2014/15 to 2018/19. The FTT held that all relevant members satisfied Condition A. It held that portfolio managers with capital allocations of at least $100 million and desk heads did not satisfy Condition B, while other portfolio managers and non-portfolio members generally did.

BlueCrest cross-appealed on Condition A, arguing that its discretionary allocations were linked to the partnership’s profits or losses. The Upper Tribunal had to determine the proper construction and application of Conditions A and B, and whether the FTT’s factual conclusions disclosed errors of law.

1. Appeal and cross-appeal dismissed. The FTT had made findings of fact which it was entitled to make and had not erred in law.

2. Condition B asks whether the mutual rights and duties of the LLP’s members, and of the partnership and its members, give the individual significant influence over the affairs of the partnership. The phrase is not restricted to the entirety of the partnership’s affairs. Influence over a significant aspect of the business may suffice, subject to a fact-sensitive assessment.

3. The inquiry is not confined to influence derived through formal constitutional procedures or the LLP agreement. Actual or de facto influence may be considered. Financial performance, financial responsibility, operational responsibility and managerial responsibility may each be relevant. The court should not impose a tripartite distinction between insignificant influence, influence and significant influence, or use the employee-partner distinction as a substitute for applying the statutory words.

4. The FTT was entitled to find that portfolio managers with capital allocations of $100 million or more and desk heads exercised significant influence. The conclusion rested on the totality of the evidence, including their investment activities, operational responsibilities, contribution to recruitment and development, managerial clout and financial contribution. The $100 million figure was not treated as a free-standing statutory threshold.

5. For Condition A, the question is whether it is reasonable to expect that at least 80% of the relevant remuneration will be disguised salary at the relevant time. Discretionary allocations calculated by reference to individual performance, with profits becoming relevant only if insufficient funds existed to pay the allocations already calculated, were not variable by reference to the overall profits or losses and were not, in practice, affected by them. A mere practical or contractual limit on payment was insufficient.

6. Challenges under Edwards v Bairstow and related authorities cannot be used to re-argue the evidence by selecting isolated passages from a lengthy record. The FTT had heard and assessed the evidence as a whole, and no basis existed for appellate interference.

• First-tier Tribunal: The appeal was allowed in part. All relevant members were found to satisfy Condition A. Portfolio managers with capital allocations of at least $100 million and desk heads were found not to satisfy Condition B, while other relevant members generally satisfied Condition B.
• Upper Tribunal: HMRC’s appeal and BlueCrest’s cross-appeal were both dismissed.