Supreme Court finds LLP asset managers are not influencers

The salaried members rules were introduced to ensure only LLP members that take genuine risks associated with self-employment can benefit from lower NI rates. This means that being promoted to or admitted as a partner is not enough to get out of paying employers' and employees' NI, if three conditions are met. Two of the conditions are concerned with financial risk and the third, which is the focus of this case, is that the member does not have significant influence over the LLP. It is necessary to "fail" at least one condition to be regarded as self-employed for tax purposes, i.e. the member must show that they do have significant influence over the LLP to fail Condition B. 

Condition B is not the most relied upon condition out of the three options, but it is the crux of the case in HMRC v BlueCrest Capital Management UK LLP, with £197m in PAYE and NI at stake. BlueCrest, having relied upon HMRC guidance, argued for a wide interpretation of the term "significant influence". Its portfolio managers managed over $100m each, which had a significant impact on the performance of the LLP. The First-tier and Upper Tribunals agreed with BlueCrest's approach, but the appeal was dismissed by the Court of Appeal. 

The Supreme Court dismissed the appeal and agreed with the Court of Appeal that significant influence must be over the affairs of the LLP as a whole. Day-to-day management of part of the business, even critical elements of it, is not sufficient. Furthermore, influence should arise from the mutual legally enforceable rights and duties of the members conferred by the LLP agreement.

Members of LLPs relying on Condition B will need to review whether they have significant influence over the affairs of the LLP as a whole in light of this decision. Being responsible for large budgets or recognised as a key decision maker to the outside world is not enough and significant influence must arise from the mutual rights and duties of members and the LLP.