The Commissioners for HMRC v HFFX LLP
[2024] EWCA Civ 813
The Commissioners for HMRC v BlueCrest Capital Management (UK) LLP
18 September 2023
[2023] UKUT 232 (TCC)
Upper Tribunal
A company's partners argued they weren't employees, just partners sharing profits and losses. The judge agreed some were truly partners because of their influence and investment, but the others were more like employees getting a salary, even if that salary varied based on company performance.
Key Facts
- •Bluecrest Capital Management (UK) LLP (BlueCrest) is a UK LLP in the alternative investment industry.
- •HMRC determined BlueCrest liable for PAYE and Class 1 NICs for 2014/15 to 2018/19, arguing most members were disguised employees under the salaried members legislation.
- •The salaried members legislation (sections 863A-G ITTOIA 2005) contains Conditions A, B, and C; failure of any one means the rules don't apply.
- •The FTT allowed the appeal partly, finding all members met Condition A, but some met Condition B.
- •HMRC appealed that no members (except Original ExCo) met Condition B, while BlueCrest cross-appealed that no members met Condition A.
- •The case concerned the interpretation of "significant influence" (Condition B) and the link between remuneration and partnership profits/losses (Condition A).
Legal Principles
Findings of fact can be challenged on appeal only if there's an error of law; the only reasonable conclusion contradicts the determination; or the tribunal misunderstood the law.
Edwards v Bairstow [1956] AC 14
The nature of a partnership is inconsistent with the status of an employee; there's a lack of subordination.
Bates van Winkelhof v Clyde & Co. LLP [2012] EWCA Civ 1207
Applying the salaried members legislation requires considering the individual case and statutory wording; there's no single test.
Bates van Winkelhof v Clyde & Co. LLP [2014] UKSC 32
Condition B focuses on whether mutual rights and duties give a member significant influence; de facto influence is considered.
Sections 863A-G ITTOIA 2005
Condition A considers whether it's reasonable to expect at least 80% of remuneration to be disguised salary (fixed, variable without reference to profits/losses, or not affected by profits/losses).
Sections 863A-G ITTOIA 2005
Outcomes
Appeal dismissed.
The FTT correctly applied Condition B; portfolio managers with significant capital allocations exercised significant influence through various activities, including managerial clout. The FTT’s findings were supported by evidence and not irrational.
Cross-appeal dismissed.
The FTT correctly applied Condition A; the link between discretionary allocations and partnership profits/losses was insufficient to remove them from the definition of disguised salary. The evidence didn't show the remuneration was reasonably expected to be affected by the overall profits or losses.
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