The recent unanimous ruling by the Supreme Court in HMRC v BlueCrest Capital Management (UK) LLP [2026] UKSC 18 is a landmark judgment which sees the highest court in the UK consider the Salaried Member Rules which were first introduced in 2014.   

Whilst the BlueCrest case revolved around the application of the Salaried Member Rules for partners in a hedge fund, the ruling is expected to affect Limited Liability Partnerships (LLPs) across professional services and investment sectors. 

Why the BlueCrest ruling matters  

The LLP model has long combined partnership flexibility with limited liability and for many professional services firms it is regarded as the standard operating model.  

The Supreme Court’s unanimous decision is likely to encourage HMRC to pursue LLPs where it believes partners have been incorrectly treated as self-employed for tax purposes, rather than as employees, under the Salaried Member Rules. 

Misclassifying a partner under the Salaried Member Rules can create a significant cost for the LLP. If the partner is reclassified as an employee for income tax purposes, the LLP may be required to pay employer’s National Insurance contributions (NIC), currently 15%, on that partner’s earnings. 

The judicial interpretation provided by the Supreme Court establishes a more formal approach to determining who qualifies as a genuine partner for tax purposes. For those LLPs relying on members falling either outside of Condition A (disguised salary) or Condition B (significant influence), the judgment warrants the need for an immediate review of governance arrangements and remuneration structures to ensure that your LLP remains compliant with the salaried members’ rules. 

Salaried Member Rules – when they apply? 

An LLP member is treated as an employee for income tax and NIC purposes if all three conditions are met: 

• Condition A (disguised salary): At least 80% of remuneration is fixed, or varies without reference to the LLP’s overall profits or losses. 
• Condition B (significant influence): The member lacks significant influence over the LLP’s affairs. 
• Condition C (capital contribution): Capital contributed is less than 25% of expected disguised salary. 

Failing any one condition preserves self-employed (partner) status. BlueCrest focused on conditions A and B. 

Condition A: profit allocation must reflect LLP performance 

Many professional firms reward partners based on personal billings, client portfolios or departmental results. 

BlueCrest argued its portfolio managers (who were members) were not receiving disguised salary because their profit allocations were subject to an overall LLP profit cap. The Supreme Court rejected this argument. 

What this means in practice 

• Personal performance is not profit-sharing. Remuneration driven principally by individual performance is likely to be disguised salary. 
• Theoretical profit caps carry little weight. The Court noted that BlueCrest's profit cap never operated in practice because the LLP was consistently profitable, such that in reality the cap would be unlikely ever to apply. 
• A genuine link to LLP profits as a whole is required. Where remuneration effectively tracks personal or departmental results, condition A is vulnerable. 

Condition B: influence must arise from legal rights 

The most significant aspect of the judgment concerned the meaning of "significant influence". The First-tier Tribunal had accepted that portfolio managers exercised significant influence because their investment decisions materially affected the LLP's success. The Supreme Court disagreed. 

What this means in practice 

• Commercial importance is not enough. Influence must derive from legally enforceable rights and duties, not from seniority, fee generation or informal authority. Being a “big hitter” in terms of billing is no longer enough. 
• Influence must be traceable to the LLP agreement. It need not appear in a single clause, but it must ultimately stem from the firm's constitutional arrangements. Authority exercised through management committees can qualify where properly delegated. 
• Strategic influence matters. Control over a department or client base, however important, is operational rather than managerial. Condition B requires influence over the affairs of the LLP as a whole. 

Strategic implications for LLPs 

The decision significantly narrows the scope for relying on conditions A and B. A successful HMRC challenge can create substantial liabilities for employer NICs, together with interest, penalties and compliance costs. Firms should therefore: 

1. Review LLP agreements (influence) - to ensure any strategic decision-making powers and delegated authority are clearly documented. 
2. Reassess remuneration models (disguised salary) - where profit allocations closely resemble commission or performance-based pay. 
3. Lean on condition C (capital) - Given the Court's approach to conditions A and B, in practical terms maintaining capital contributions of at least 25% of expected “disguised salary” may now represent the most reliable route to preserving partner status. 

What LLPs should do now 

The clear message from BlueCrest is that both profit participation and influence must be genuine, legally grounded and reflected in the LLP's constitutional arrangements. 

We have significant experience reviewing the salaried member rules and have also successfully resolved HMRC enquiries in this area with no adjustments for our clients. If you would like assistance regarding this, please speak to your usual Johnston Carmichael contact. You can also contact Alex Docherty or Roger Campbell within our Professional Services team, or by filling out the short form below.