R & C Commissioners v Bluecrest Capital Management (UK) LLP

JurisdictionUK Non-devolved
Judgment Date18 September 2023
Neutral Citation[2023] UKUT 232 (TCC)
CourtUpper Tribunal (Tax and Chancery Chamber)
R & C Commrs
and
Bluecrest Capital Management (UK) LLP

[2023] UKUT 232 (TCC)

Mr Justice Edwin Johnson, Judge Jennifer Dean

Upper Tribunal (Tax and Chancery Chamber)

PAYE and NICs – Salaried members legislation – ITTOIA 2005, s. 863A–863G – Whether the members of the LLP met Conditions A and B – Appeal and cross-appeal dismissed.

Abstract

In R & C Commrs v Bluecrest Management (UK) LLP [2023] BTC 529, the Upper Tribunal (UT) dismissed appeals against the First-tier Tribunal (FTT) decision in Bluecrest Capital Management (UK) LLP, finding that there was no error of law in its application of the legislation to the facts of the case.

Summary

In this case, HMRC appealed against the FTT decision in Bluecrest Capital Management (UK) LLP that some members of Bluecrest Capital Management (UK) LLP (the respondent), a UK registered LLP that is part of a group providing investment services, had significant influence over the affairs of the respondent such that they did not meet condition B in ITTOIA 2005, s. 863C. The respondent also issued a cross-appeal against the FTT decision on the grounds that condition A in ITTOIA 2005, s. 863A was not met by any of its members and that the FTT erred in its construction of condition A and accordingly applied the wrong test.

HMRC argued that the FTT was wrong to conclude that a capital allocation of $100m was sufficient evidence to demonstrate that a member had significant influence over the affairs of the respondent. Disagreeing with HMRC, the UT ruled that the FTT did not rely on the financial impact alone and the decision was based on all findings as to the activities of the members in question.

In considering the application of condition A, the UT found that the discretionary allocation of profits to members was based on personal performance rather than being tied to the overall profits or losses of the respondent. In addition, the burden of proof rested with the respondent who had been unable to demonstrate to the FTT that it was reasonable to expect that the discretionary allocations calculated for the relevant years would be affected by a reduction in profits or any arising losses.

The UT therefore concluded that the FTT made findings of fact that it was perfectly entitled to make and that there was no error of law in its approach to and construction of the legislation, or in its application of the legislation to the facts of the case.

The appeal and cross-appeal were dismissed.

Comment

This case revolves around the application of the salaried member rules found in ITTOIA 2005, s. 863A–863G that tax certain LLP members as employees. The FTT had allowed the original appeal in part concluding that members with a capital allocation of $100m or more had significant influence over affairs of the partnership so did not meet condition B. The UT upheld this decision but did emphasise that the FTT has considered all the facts and evidence provided and that its decision did not simply depend on a dividing line of capital allocation. Unfortunately, there is no one size fits all approach to answering these conditions, whether there is significant influence in the case of any individual member of an LLP will depend upon the facts of the particular case.

For commentary on the LLP salaried members rules, see In-Depth at .

Comment by Laura Burrows, Senior Tax Writer, Croner-i Ltd.

Richard Vallat KC, Laura Poots and Calypso Blaj, Counsel, instructed by the General Counsel and Solicitor to His Majesty's Revenue and Customs, appeared for the appellant

Amanda Hardy KC and Oliver Marre, Counsel, instructed by Slaughter and May Solicitors, appeared for the respondent

DECISION
Introduction

[1] Bluecrest Capital Management (UK) LLP (“BlueCrest”) is a UK registered Limited Liability Partnership (“LLP”) which carries on business in the alternative investment industry as part of the BlueCrest Group providing investment management services to the Group's funds.

[2] Its appeal to the First-tier Tribunal (“FTT”) concerned the application of the salaried members legislation to certain individual members of BlueCrest which, in summary, applies where a member of a limited liability partnership is to be treated as an employee of that partnership for the purposes of income tax and national insurance contributions (“NICs”).

[3] The salaried members rules contain three conditions, each aimed at capturing a different feature of “disguised employment” in an LLP. To fall outside the scope of the legislation a member need only fail any one condition. This case is concerned with two conditions contained within the legislation:

  • Condition A, which is met if a member's remuneration from the LLP is (a) fixed or (b) is variable, but is varied without reference to the profits or losses of the partnership or (c) is not in practice affected by the overall amount of those profits or losses.
  • Condition B, which is met if a member does not have significant influence over the LLP's affairs.

[4] BlueCrest appealed to the FTT against HMRC Determinations that it is liable to pay income tax under the pay-as-you-earn (“PAYE”) regime and HMRC's decision that it is liable to pay Class 1 NICs for the tax years 2014/15 to 2018/19 inclusive on the basis that all but four members of BlueCrest satisfy both Condition A and Condition B and accordingly should be taxed as employees.

[5] In its decision (“the Decision”) released on 29 June 2022, the FTT allowed the appeal in part. It decided that all members of BlueCrest met Condition A and some members met Condition B. References below to paragraphs in the form [X] are, unless otherwise indicated, references to paragraphs in the Decision. References to partnerships mean, unless otherwise indicated, partnerships operating as LLPs pursuant to the Limited Liability Partnership Act 2000. References to traditional partnerships mean partnerships, often referred to as firms, as defined in the Partnership Act 1890.

[6] With the permission of the FTT, HMRC (“the Appellant”) appeals (“the Appeal”) against the Decision of the FTT on the basis that no members had significant influence over the affairs of BlueCrest such that Condition B was met by all members (other than the Original ExCo). HMRC argue that the FTT erred in its construction of section 863C Income Tax (Trading and Other Income) Act 2005 and the application of the test contained therein.

[7] With the permission of the FTT, BlueCrest (“the Respondent”) cross-appeals (“the Cross-Appeal”) against the Decision of the FTT on the grounds that Condition A was not met by any of its members. It argues that the FTT erred in its construction of Condition A and accordingly applied the wrong test.

[8] Both parties' grounds of appeal also raise challenges to the FTT's findings of fact on the basis of Edwards v Bairstow [1956] AC 14.

[9] BlueCrest was represented by Ms Hardy KC and Mr Marre. HMRC were represented by Mr Vallat KC, Ms Poots and Ms Blaj. We are grateful to Counsel for their written and oral submissions and to those instructing Counsel for organising the hearing bundles. In this context we should add that the submissions, the hearing bundles and the authorities for this hearing were extensive. We have not found it necessary, in this decision, to make specific reference to all of the submissions or to all of the materials to which we were referred. In reaching this decision, we should make it clear that we have taken into account all the submissions and the materials to which we were referred.

Legislation

[10] The salaried members rules are found in sections 863A to 863G ITTOIA 2005 (income tax) and section 4 SSCBA 1992 and regulation 4 SSC(LLP)R 2014 (NICs). The provisions, which were introduced by the Finance Act 2014 and came into effect on 6 April 2014, were designed to remove the presumption of self-employment for some members of LLPs and so tackle the disguising of employment relationships through LLPs. As explained by the FTT (at [5]) they are intended to apply to those members of LLPs who are more like employees than partners in a traditional partnership. They are designed to ensure that LLP members who are, in effect, providing services on terms similar to employment are treated as employees for tax purposes. In order for the rules to apply, an individual must satisfy Conditions A, B and C. Failure to satisfy any of these conditions means that the rules do not apply. It is common ground in this appeal that Condition C applies to the individual members of BlueCrest.

[11] The relevant legislation is set out in the Appendix to this Decision. Definitions and abbreviations in that Appendix bear the same meanings in the body of this Decision.

Relevant background

[12] There was no dispute in relation to the material facts, which the FTT helpfully set out at [16]–[44] and from which we have drawn the following summary.

[13] The BlueCrest Group is involved in financial asset management around the world. BlueCrest forms part of the BlueCrest Group and was incorporated in England and Wales on 29 October 2009.

[14] BlueCrest commenced business in London on 1 April 2010 providing investment management services to the Group's funds, as a sub-investment manager working under the “lead investment manager” (BlueCrest Capital Management LP (a Guernsey Limited Partnership)) from time to time; and providing back-office services to other Group entities.

[15] Prior to December 2015, the Group managed the funds of external investors, and also “internal funds”. External funds made up over 90% of the assets under management.

[16] Since December 2015 all the Group funds have been closed to outside investors. The main investment fund is BSMA Ltd (“BSMA”). A further fund known as Millais Limited was set up in 2017. There are now $3.9 billion under management across the Group (held in BSMA and Millais (together the “Fund”)).

[17] BlueCrest Capital Management Limited (a Jersey-resident company) is the general partner (“General...

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