HMRC reconsiders salary members guidance after BlueCrest case

It is understood HMRC is to reverse its previous guidance on the interpretation of Condition C of the legislation that applies for “salaried members” of limited liability partnerships (LLPs). This news follows the Court of Appeal’s (CoA) decision in the BlueCrest case, published on 17 January 2025, which has important implications for the application of Condition B of the salaried members rules and confirms previous judgments on Condition A.

Should HMRC confirm this reversal, LLPs will still need to consider the impact of this change and take action to ensure full compliance with the legislation. Not only will HMRC be interested in how firms adopt these changes, but it is also worth noting that we have seen several deals, particularly involving purchasers with private equity backing, using non-compliance with the legislation and guidance on salaried members as leverage and for “value chipping” purposes. Ensuring compliance with all aspects of the salaried members rules in advance of any tax due diligence is vitally important, and is potentially materially affected by these developments.

Conditions C and B of the salaried members rules – the key points

Condition C:

• HMRC is expected to formally confirm that it will now accept capital contributions that are genuine, intended to be enduring, and involve real risk as valid for purposes of applying Condition C.
• This reverses the changes made to HMRC guidance in February 2024, which had caused significant uncertainty and the risk of employment taxes being assessed.

Condition B:

• The CoA ruled in favour of HMRC, applying a narrower interpretation of “significant influence” than previously understood.
• As a result, for LLP members not to be treated as salaried members under this condition, the influence exercised by them must be grounded in the legally binding constitutional framework of the partnership and not de facto influence.
• The CoA found that the First-tier Tribunal (FTT) and Upper Tribunal erred on a point of law and have remitted the case back to the FTT.

Key actions for LLPs

LLPs should take the following steps to ensure compliance with the new guidance:

• Undertake a review of members’ agreements: LLPs should revisit their salaried member analysis and monitoring arrangements.
• Implement good governance: Ensure robust governance and policies are in place to support compliance with the new guidance.
• Seek professional advice: Obtain appropriate professional advice to navigate these changes effectively.
• Monitor legislation and guidance: Stay vigilant and monitor any further legislative updates and changes to guidance to ensure ongoing compliance.

With the start of the new tax year approaching, it is crucial for LLPs to take these steps to mitigate risks and ensure clarity over the tax status of their members. 

Please contact a member of our professional services team if you would like more detailed information or specific advice on how these developments might impact your firm.