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

The Court of Appeal allowed HMRC's appeal on the correct construction of Condition B in the "salaried members" legislation (Income Tax (Trading and Other Income) Act 2005, sections 863A to 863G as inserted by Finance Act 2014). The court held that Condition B must be satisfied only where the qualifying influence of an individual member is given by the mutual rights and duties of the members and of the partnership and its members, i.e. by enforceable statutory or contractual rights (principally the LLP agreement or applicable regulations). The First-tier Tribunal and Upper Tribunal were wrong to treat de facto influence lacking a legal source as capable of qualifying under Condition B.

Condition A was declared to be met for all relevant members (including portfolio managers and desk heads): the discretionary allocation mechanism and related payments were held to fall within the statutory definition of "disguised salary" (notably step 2, limb (b)). The Court rejected BlueCrest's procedural objection to HMRC’s alternative construction being advanced on appeal and remitted the matter to the First-tier Tribunal for reconsideration of Condition B in light of the correct legal test.

This appeal concerned the interpretation and application of the salaried-members regime for limited liability partnership members (ITTOIA sections 863A–863G, inserted by Finance Act 2014). HMRC issued determinations and NIC decisions for tax years 2014/15 to 2018/19, asserting that most individual members of BlueCrest LLP were "salaried members" because they met Conditions A, B and C, thereby attracting employment tax treatment.

Background and facts: BlueCrest is a captive LLP within a wider group providing investment and support services. The LLP agreement excluded the default mutual-rights provisions in the LLP Regulations 2001. Members were categorised as infrastructure members, portfolio managers (including desk heads) and other front-office members. The First-tier Tribunal accepted Condition A for all relevant members, held that high-value portfolio managers and desk heads lacked Condition B (they had significant influence) but found other members met Condition B. HMRC and BlueCrest both appealed to the Upper Tribunal; the Upper Tribunal dismissed both appeals. HMRC then appealed to the Court of Appeal on Condition B; BlueCrest cross-appealed conditionally and also advanced a respondent’s notice that some portfolio managers failed Condition A.

Issues framed:

• What is the correct construction of Condition B (section 863C) – in particular the meaning and source of "significant influence" and the effect of the requirement that it be given by the "mutual rights and duties of the members … and of the partnership and its members"?
• Whether the tribunals were entitled to treat de facto influence lacking a statutory or contractual source as qualifying under Condition B.
• Whether Condition A was met for portfolio managers and desk heads (respondent’s notice).
• Procedural: whether HMRC could advance a narrower, alternative construction in this court not pressed below and the consequences if that construction were accepted.

Court’s reasoning: The court applied established principles of statutory interpretation (R (O) v Secretary of State for the Home Department) and emphasised that words Parliament enacted are primary. Condition B’s language requires qualifying influence to derive from the mutual rights and duties conferred by the statutory and contractual framework governing the LLP (for example the LLP agreement and, absent modification, default provisions under the LLP Regulations 2001). De facto influence without a legally enforceable source is not qualifying influence for Condition B, although evidence of such non-qualifying influence may still be relevant to whether qualifying influence is "significant". The court rejected the argument that "affairs" must mean the entirety of the LLP’s affairs and accepted that influence may relate to particular aspects of the LLP’s affairs. The court dismissed the procedural objection to HMRC’s alternative case: on a pure question of statutory construction the court would decide the legal meaning and, given the parties’ conduct and the public interest in correct tax law application, HMRC’s fallback was permitted. On Condition A the court agreed with the tribunals that discretionary allocations were captured by the definition of "disguised salary" (step 2, limb (b)): the mechanism resembled salary-plus-bonus rather than a standard partner profit-share because awards were computed with reference to individual performance and only capped by the overall profits.

Disposition: The Court allowed HMRC’s appeal on Condition B, set aside the Upper Tribunal decision on that point and remitted the case to the First-tier Tribunal for rehearing applying the correct construction of Condition B. The Court also declared that Condition A is met as regards all relevant members including portfolio managers and desk heads.

Appeal allowed. The Court of Appeal held that Condition B must be interpreted to require that any qualifying "significant influence" be given by the mutual rights and duties of the members and of the partnership and its members (i.e. have a statutory or contractual source, principally the LLP agreement or applicable regulations). The First-tier Tribunal and Upper Tribunal erred by accepting that de facto influence without such a legal source could qualify. The Upper Tribunal decision on Condition B was set aside and the matter remitted to the First-tier Tribunal for reconsideration under the correct test. The Court also declared Condition A to be met for all relevant members (including portfolio managers and desk heads) on the factual findings below.

First-tier Tribunal decision: BlueCrest appeal allowed in part and dismissed in part, [2022] UKFTT 204 (TC) (FTT Decision). Upper Tribunal (Tax and Chancery Chamber) dismissed both parties' appeals, [2023] UKUT 00232 (TCC) (UT Decision). This Court (Court of Appeal) allowed HMRC’s appeal on Condition B and remitted the matter to the First-tier Tribunal, [2025] EWCA Civ 23.