10/04/2023 | News release | Distributed by Public on 10/04/2023 08:20
Asset managers established as LLPs will welcome the Upper Tribunal's recent decision to uphold the decision of the First Tier Tax Tribunal ("FTT") on the application of the salaried member rules in Bluecrest.1 Our previous OnPoint on the FTT's decision can be found here.
The salaried member rules were introduced in 2014 to tax LLP members as employees (subject to PAYE and employer NICs) unless they "fail" one of three conditions, each aimed at capturing a different feature of "disguised employment" in an LLP. These are, in brief:
The FTT decided that portfolio manager members of Bluecrest did exercise significant influence and so were not salaried members. The appeal primarily focused on the significant influence test (Condition B), which HMRC argued the FTT had erred in construing on a number of grounds. Bluecrest cross-appealed, including on the construction of the disguised salary condition (Condition A) in respect of which the FTT decided that members' profit allocations did not vary by reference to the profits of the LLP as a whole.
The Upper Tribunal dismissed all grounds of HMRC's appeal. Agreeing with the FTT, it held that significant influence:
Similarly, the Upper Tribunal dismissed Bluecrest's cross-appeal regarding Condition A. As stated in the FTT decision, Bluecrest had failed to provide evidence that discretionary allocations were capable of variation by reference to the profits of the LLP despite the potential for allocations to be scaled back in the event of insufficient overall profits. The Upper Tribunal was therefore not prepared to challenge the FTT's findings of fact.
In reaffirming the FTT's broad interpretation of significant influence, the Upper Tribunal's judgment is very positive for taxpayers. While less positive, its decision to reject Bluecrest's cross-appeal on Condition A is unsurprising. It remains to be seen if HMRC will appeal the decision on significant influence or seek to limit the judgment to the specific facts of the case. In any case, the latest developments should be welcomed by asset managers established as LLPs.
Footnotes
1) [2023] UKUT 00232 (TCC)