The Supreme Court's unanimous judgment in HMRC v BlueCrest Capital Management (UK) LLP [2026] UKSC 18, regarding the Salaried Member Rules ('SMR'), was handed down on 1 July 2026. In summary, BlueCrest’s appeal was dismissed, and the judgment confirmed the Court of Appeal’s strict and narrow approach in determining “influence” under Condition B, whilst also upholding the lower court’s interpretation that Condition A concerns overall LLP profits. The case will now be returned to the First-tier Tribunal for reconsideration in line with Court of Appeal’s decision.
Although BlueCrest is a hedge fund, the points raised in this case have direct application to other LLPs, in particular those which are solely relying on not meeting Condition B. Please refer to our summary of the Court of Appeal’s judgment of January 2025 for further background.
Supreme Court judgment key take aways
- Condition B is a question of legally enforceable rights and duties meaning that de facto influence over the affairs of the LLP derived from members’ performance (e.g. how much money they manage) is not relevant in testing whether influence is “qualifying” for SMR purposes. The Supreme Court confirmed that Condition B is concerned with the mutual legally enforceable rights and duties of the members and of the partnership. These are the legally enforceable rights and duties conferred by the contractual and statutory framework which governs the operation of the partnership such that, where there is an LLP agreement, that will be the starting point for identifying the relevant rights and duties. That said, the Supreme Court clarified that “qualifying influence” is not limited to the LLP agreement and can derive from delegated authority, or from holding a specific role that can ultimately be traced back to the LLP agreement. However, it is the scope of the role, rather than the performance of that role that is relevant for the purposes of assessing whether Condition B is met.
- The Supreme Court confirmed that a portfolio manager's day-to-day investment decisions (in this case in relation to their own capital allocation), no matter how substantial or consequential to the business, do not constitute “significant” influence over the affairs of the partnership for Condition B purposes. The Supreme Court tended to agree with the Court of Appeal that the focus is likely to be on “managerial” or “strategic” decision-making, although they did not exclude the possibility that a member might have significant influence without necessarily being involved in strategic decision-making. Furthermore, the influence in question must be over "the affairs" of the LLP taken as a whole. Therefore, day-to-day management or operational management of only a part of the business, even in relation to a core part, is not sufficient.
- On the question of what “influence” means, the Supreme Court confirmed that a member need not have the ability or power to control the LLP’s affairs to determine a course of action and that it would be sufficient for them to have the right to participate in important decisions capable of affecting the affairs of the partnership whether through meaningful voting or other rights. The Supreme Court also commented on veto powers and reserved powers, saying that significant influence can still accommodate reserved powers.
- Condition A is almost certainly met if the LLP members' remuneration is calculated solely by reference to their individual portfolio or book performance, not the overall LLP profits, regardless of any notional cap on total distributions. The Supreme Court noted that Condition A is designed to reflect one of the principal characteristics of a traditional partnership: that the profits and losses of the partnership are shared between the partners. The receipt by a person of a share of the profits made by that person in the performance of their duties on behalf of a partnership, subject merely to a cap based on the total profits of the firm, would not satisfy that test.
Next steps
This will be a disappointing outcome for BlueCrest; however, we would note that in handing down their judgment the Supreme Court have provided a clear position on what will, and what will not, be treated as significant influence for SMR purposes, with slightly more leeway than suggested by the Court of Appeal, specifically with regard to the concept of delegated authority. This should hopefully provide more certainty around ensuring robust and defensible positions for genuine partners moving forward.
Firms who rely on failing Condition B may wish to consider whether a process of review and revision to existing governance frameworks and LLP agreements is an appropriate next step. At a minimum we would strongly recommend that the LLP agreement is examined with the following questions in mind:
- What rights do individual members have under the LLP agreement?
- How is management authority structured? Is it vested in a board, a GP, or a committee and do individual members sit on it?
- What delegated authority have members been given and can that authority be traced clearly back to the LLP agreement?
- How are votes weighted?
It will be important if any amendments to the LLP agreement are contemplated that the changes are commercially justifiable. Targeted anti-avoidance provisions can apply where the main purpose of arrangements is to avoid the salaried members rules. Any changes to governance or remuneration structures will need to withstand scrutiny and must reflect genuine commercial and operational reality.