Neil Williams
Partner
11 February 2025
For Limited Liability Partnerships (LLPs) and their members concerned about the application of the salaried members rules, 2025 has started with a bang.
First the positive news for those firms that rely on compliance with Condition C to provide certainty over the tax status of their members. HMRC confirmed on 7 February 2025 that they will, in effect, reverse the changes they made to their guidance in February 2024 – changes which triggered a huge amount of uncertainty and risk of employment taxes being assessed.
In line with their original guidance, HMRC now accept that, when determining whether or not Condition C is met, capital contribution arrangements which result in a genuine contribution made by the individual to the LLP, intended to be enduring and giving rise to real risk, will not trigger the targeted anti-avoidance rule (TAAR).
For those firms relying on their members failing Condition B, however, the decision of the Court of Appeal (CoA) in Bluecrest, handed down on 17 January 2025, is a less welcome development.
In finding for HMRC, the CoA applied a much narrower construction to the meaning of ‘significant influence’ than is set out in HMRC’s guidance. It had been common ground between the parties that, in addition to the rights and duties under the LLP agreement, it was appropriate to take into account actual (de facto) influence. However, the CoA ruled that this is incorrect and that both the First-Tier Tribunal (FTT) and Upper Tribunal (UT) had erred in law in accepting this wider construction. Under the CoA’s interpretation, to qualify, the influence must be grounded in the legally binding constitutional framework of the partnership and de facto influence does not qualify.
Whilst much uncertainty remains, with Bluecrest remitted back to the FTT to reconsider the evidence in light of the CoA’s interpretation of significant influence, and notwithstanding that permission to appeal to the Supreme Court may be sought, LLPs should take stock of these latest developments.
Firms will be well advised to revisit their salaried member analysis and monitoring arrangements, as well as to consider any steps which may lawfully be taken to bring more clarity to the tax status of their members. If you would like to discuss the impact of the latest developments to your structures, please do feel free to reach out. We are aware of a rise in communications from HMRC to LLPs regarding the salaried member rules, and with the latest win for HMRC, this will become more and more of a focus.
To discuss how we can help your partnership, please contact Jitendra Patel or our team.
