Employment status for tax purposes

BlueCrest loses appeal, Supreme Court gives guidance on how to determine whether a salaried member of an LLP is taxed as an employee or as a partner; members’ “significant influence” over the affairs of an LLP must be determined by reference to their enforceable mutual rights and duties.

The Supreme Court dismissed BlueCrest’s appeal, confirming that most of its members should properly be treated as employees for tax purposes under the salaried members legislation. The salaried members legislation was enacted to counter the perceived unfairness in the taxation of certain members of LLPs. It sets out three separate conditions (see below) each directed at capturing a different feature of “disguised employment” in an LLP. A member is to be treated as an employee for tax purposes if each of the three conditions is met; if any one of the conditions is not met, the member is treated as an employee.

The three conditions are: Condition A (earnings are effectively disguised salary), Condition B (member lacks “significant influence” over LLP) and Condition C (insufficient capital contribution)) set out under the Finance Act 2014 (enacted to avoid “disguised employment”) must be met. It was accepted that Condition C is met by BlueCrest’s members, so the appeal centred around whether HMRC could show that BlueCrest’s members satisfied Conditions A and B.

HMRC issued determinations for the 2014–2019 tax years on the basis that most members were...

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