LLP Salaried member Rules: HMRC compliance approach following Bluecrest

In BlueCrest [2025] EWCA Civ 23, the Court of Appeal (CoA) held that the “significant influence over the affairs of the partnership” contemplated by Condition B of the Salaried Member Rules (ITTOIA/S863C) must derive from, and have its source in, the mutual rights and duties of the members (between themselves and between the members and the LLP) as conferred by the statutory and contractual framework which governs the operation of the LLP. HMRC had previously accepted at the First Tier Tribunal and Upper Tribunal, and in its skeleton argument submitted to the CoA, that it was permissible to also take into account de facto significant influence, but this was ruled to be incorrect by the CoA. 

An application for permission to appeal to the Supreme Court has been made and a decision is awaited.

HMRC’s letter explains that it is duty bound to apply the law correctly and all tax disputes need to be handled and resolved in accordance with HMRC’s Litigation and Settlement Strategy (LSS). Therefore, HMRC will seek to establish relevant facts on a case-by-case basis and will continue to take a collaborative approach to SMR compliance work wherever possible.  

HMRC will continue to carry out compliance activity in relation to Condition B, and the SMR more generally. However, HMRC does not anticipate a material change to the current and planned compliance approach as a direct consequence of the Court of Appeal’s finding that mutual rights and duties must derive from, and have its source in, the statutory and contractual framework that governs the operation of the LLP.  

Compliance activity in relation to the SMR and Condition B will include continuing to open compliance checks where HMRC considers there to be a risk in a particular case that significant influence does not derive from the individual’s role as a member and the mutual rights and duties. HMRC will also continue to seek to establish and understand the relevant facts and documents as quickly and efficiently as possible, and requesting a copy of the LLP agreement will remain standard practice. However, for cost effectiveness, HMRC will consider agreeing with customers, on a case-by-case basis, not to seek their views as to whether any significant influence derives from legally enforceable mutual rights and duties until at least the Supreme Court decides whether permission to appeal should be granted (and HMRC will consider this again after the Supreme Court decides whether to grant permission).  

While HMRC will continue to issue relevant determinations and assessments within statutory time limits where they consider there to have been an underassessment of tax, HMRC will continue to take a collaborative approach when handling any appeal and be open to agreeing, on a case-by-case basis, not to start the formal litigation process where it is agreed that the outcome of BlueCrest may be materially relevant to the case in question. Again, HMRC will reconsider this once the Supreme Court decides whether to grant permission to appeal. 

HMRC is advising LLPs that have concerns about the impact of the CoA decision to discuss this with their Customer Compliance Manager (CCM), if they have one, or the Compliance Officer handling the compliance check.