CLIENT ALERT
The end of the “significant influence” debate? What the Supreme Court’s BlueCrest decision means for LLPs
Jul 13, 2026
Read time: 12 min
In its much-anticipated decision in HMRC v BlueCrest Capital Management (UK) LLP, the Supreme Court has largely adopted the Court of Appeal’s restrictive interpretation of what is meant by “significant influence” for purposes of Condition B of the salaried member rules. Whilst this will be disappointing for many LLPs that have sought to rely on the “significant influence” condition, the Supreme Court’s decision does at least bring some finality to the question of what is required to meet the “significant influence” test.
The Supreme Court identified three main features that must be present for a member of an LLP to have “significant influence”:
- Influence must be derived from the mutual rights and duties of the members which are either set out in the LLP Agreement or are ultimately derived from the LLP Agreement (e.g., where an authority conferred by the LLP Agreement is legitimately delegated). Crucially, the Supreme Court overrides the lower courts’ acceptance of the concept of actual or informal or de facto influence, not founded in the LLP Agreement, and concludes firmly that this is not relevant.
- Influence must be over the affairs of the LLP at a strategic or managerial level generally, viewed as a whole. A member’s importance to the business does not equate to “significant influence”, and influence over only some of the affairs of the LLP (e.g. the running of a particular trading desk or business division of the LLP) is not sufficient.
- The member must have the right to participate in important decisions capable of affecting the affairs of the LLP or the way in which the affairs of the LLP are conducted, and that this influence must be of a degree which has practical and commercial substance in the conduct of the affairs in the real world.
Under the salaried members regime, individual members of a Limited Liability Partnership (LLP) are treated for all tax purposes as employees (and so covered under PAYE and the application of employers’ NIC) unless they meet any one of three Conditions (in which case they are treated as self-employed for tax purposes).1
Many LLPs in the investment management sector rely upon Condition B to ensure that some of their members are not treated as employees. Condition B requires that “…the mutual rights and duties of the members of the limited liability partnership, and of the partnership and its members,….give [the member] significant influence over the affairs of the partnership”.
But what it actually means to have “…significant influence over the affairs of the partnership” has been a matter of controversy ever since the salaried members regime was introduced. The Supreme Court’s decision should at least now bring some finality to that debate.
The Supreme Court begins its discussion of “significant influence” by stating that the statutory language is made up of “ordinary English words” which should be given their meanings in common usage and are not terms of legal art. It is considered “…generally neither necessary nor wise for a court to attempt to define [an ordinary English word] by substituting or paraphrasing the word.” However, the court does then somewhat modify this purist approach and goes on to give HMRC and taxpayers some explanation and guidance as to what should be understood to be meant by “significant influence”.
The Supreme Court also underlines that “…the words [of the statutory provision] must ultimately be interpreted together, in the context of the salaried members legislation read as a whole”, but is willing to adopt the approach followed by the parties, and break the Condition B test down into three main parts.
How is significant influence derived?
The Supreme Court follows the Court of Appeal in finding that a member’s influence must be comprised in the legally enforceable rights and duties conferred by the contractual and statutory framework which governs the operation of the LLP. In most cases, this means that the member must derive influence from rights in the LLP Agreement, although the Supreme Court does recognise that in some cases the LLP Agreement may be only the ultimate source of the influence, e.g., where an LLP Agreement gives decision-making authority to an executive committee, which then delegates that authority to a sub-committee or smaller group of individuals.
However, the Supreme Court is clear that actual or de facto influence (not derived from the LLP Agreement) is irrelevant for purposes of the Condition B test and cannot be or contribute towards “significant influence”. This question has its origins in the decisions of the lower tax courts, which held that a member’s importance and contribution to the business could give the member “significant influence”, even if that member was not involved in LLP decision-making and did not have any kind of “managerial” role. In a much-discussed example, the First Tier Tribunal suggested that a portfolio manager with the responsibility for managing his own book with a value of $100 million or more could, through the importance to the business that this represented, mean that the portfolio manager had “significant influence”.
The Supreme Court entirely dismissed the actual or de facto influence approach. Influence as a consequence of a member’s strong performance in their role, high financial contribution to the profits of the LLP, the fact that the member is an excellent rainmaker or investor, personal qualities or relationships with clients or key customers should not be taken into account and is, the Supreme Court tells us, non-qualifying influence.
When is influence “significant”?
The Supreme Court also tells us that the requirement for “significant influence” does not mean that the member must have sole control or the ability to direct or dictate, or to determine a particular course of action. But on the other hand, it is not enough for a member to have [qualifying] influence – the member’s influence must be “significant” which (in the view of the court) must add some intensity to the strength of the influence. The Supreme Court adopts the Court of Appeal’s paraphrase of “significant” as a degree of influence…which has practical and commercial substance in the conduct of the [LLP’s] affairs in the real world.
In practical terms, it seem that the member must have the ability to influence the affairs of the LLP in the sense of having the right to participate in important decisions capable of affecting the affairs of the LLP or the way the affairs of the LLP are conducted, whether through meaningful voting or other rights. It is not enough for a member to have only a nominal vote, or a vote that is not large enough to be able to influence which way a decision goes in any circumstances (for example, because another member has such a share of the votes that that member can always outnumber the votes of all other members). In another part of the decision, the Supreme Court describes a member with influence as having “a voice in the management of the affairs of the LLP”, but it seems that “a voice” here means the ability to influence decisions by casting a vote, and not merely a right to be heard.
What are the “affairs of the LLP”?
The Supreme Court recognises that there are two distinct questions here. First, what is covered by the phrase “affairs of the LLP” over which a member must have “significant influence”; and secondly, must the “significant influence” be exerted over the whole field of those affairs.
By analogy with other legislative provisions that utilise the phrase “the affairs of [a body]”, the Supreme Court confirmed that the expression “the affairs of the LLP” should be given the widest meaning, and that it encompasses more than the business of the LLP, going wider to include all its business affairs, interests or transactions, all of its property and investment interests and all of its profits and losses.
The Supreme Court also rejected BlueCrest’s contention that the required “significant influence” could be over only part of the affairs of the LLP (such as a particular business line or division of the business), but rather held that “significant influence” denoted a participation in “managerial” or “strategic” or “high-level” decision-making. “Significant influence” cannot arise from a participation in day-to-day or operational decisions in a particular part of the business.
This implies that where the “strategic” or “high-level” decisions in relation to the conduct of the wider affairs of the LLP are taken in the context of a board or executive or management committee of the LLP, a full participation in that committee is a pre-requisite for a member of the LLP to have “significant influence”.
The Supreme Court did, however, give some tolerance to the concept of the “reserved matter” or “reserved powers” by which the LLP Agreement might reserve consent or veto rights in respect of particular matters to a single member, such as a founder or managing member. The Supreme Court was willing to concede that the LLP Agreement might provide for such reserved matters without stripping other members of their “significant influence”, but did appear to suggest that such reserved matters would need to be strictly limited. The analogy given is that of a limited company where the holders of a particular class of shares might have a veto right over certain specified matters, but it would remain the case that the directors and the general body of shareholders would have control and “significant influence” over the affairs of the company. The Supreme Court concedes that “[s]ignificant influence over the affairs of an LLP can accommodate the existence of reserved powers”, but it is clear that it intends the scope of those reserved powers to be strictly limited.
