Is your LLP structure still tax efficient?

Limited liability partnerships (LLPs) have been available as a business structure since 2001, and one of their long-standing attractions has been tax efficiency. Members can be treated as self-employed for tax purposes, rather than as employees, provided certain conditions are met. Whether those conditions are met can make a significant difference to how much tax and National Insurance is paid, both by individual members and by the LLP itself.

On 1 July 2026, the Supreme Court handed down its long-awaited judgment in HMRC v BlueCrest Capital Management (UK) LLP, a case which asked when a member of an LLP has enough influence over the business to be treated as genuinely self-employed for tax purposes, rather than as an employee. The Court’s decision significantly narrows the circumstances in which that self-employed tax treatment will apply.

The implications of the BlueCrest ruling apply to any limited liability partnership, however small, where senior members are treated as self-employed partners. For SME LLPs in particular, where members have often assumed that their seniority or day-to-day involvement in running the business was enough to keep them outside the salaried members rules, this decision is a genuine wake-up call.

Many LLPs, especially smaller and owner-managed businesses, have assumed that a member’s seniority or hands-on operational role was sufficient to demonstrate significant influence. Following the BlueCrest decision, that assumption can no longer be relied upon. Members should not wait for HMRC to come knocking at their door, but should commence a review of their LLP agreement as soon as possible. Reviewing your position now, rather than waiting for HMRC to raise the issue, gives you the opportunity to correct any weaknesses on your own terms.

In this blog, we explain what has changed and what LLP members should be doing now to protect their position.

The risks of getting this wrong

If HMRC decides that your members have been wrongly treated as self-employed, the consequences can be serious. Your LLP can face backdated PAYE and National Insurance liabilities, together with interest, for periods going back several years. That liability falls on the LLP itself, as the entity responsible for operating PAYE and National Insurance, rather than solely on the individual member concerned, although in practice it is likely to reduce the profits available to share among all members. Because of the sums and complexity involved, we would always recommend involving your accountant or tax adviser alongside your solicitor when reviewing your position.

What has changed

Tax rules known as the ‘salaried members rules’ decide whether an LLP member is taxed as a genuine, self-employed partner, or instead as an employee for tax purposes. Being taxed as self-employed is normally the more tax-efficient outcome, and is what most LLPs and their members want to achieve. To do so, a member needs to satisfy at least one of three legal tests. The most commonly relied upon is known as ‘Condition B’, which looks at whether the member has ‘significant influence’ over the affairs of the LLP as a whole.

Until now, HMRC’s own guidance suggested that informal influence, built up through a member’s seniority, reputation or day-to-day operational responsibility, could count towards satisfying Condition B, even without formal legal rights. Many LLPs relied on this guidance when deciding how to treat their members for tax purposes.

The Supreme Court has now confirmed that this guidance was wrong. Significant influence must come from formal, legally enforceable rights and duties set out in the LLP agreement, or otherwise properly delegated under it. Informal authority, however real it may feel in practice, is no longer enough on its own to satisfy Condition B.

This means that day-to-day operational involvement, however senior your member or however commercially important their role, will not by itself satisfy Condition B. A broker with authority over a substantial book of business, a department head who effectively runs a division, or a senior member who is widely regarded as a decision-maker may still fail this test and be taxed as an employee rather than as a self-employed partner, if that influence is not clearly and formally reflected in your LLP agreement.

For LLP members and management alike, this means the practical reality of who runs the business is no longer the relevant point. What matters is the authority your LLP agreement actually grants, and whether that authority would genuinely stand up to challenge.

It is worth remembering that Condition B is only one of three ways a member can qualify for self-employed tax treatment. A member may still keep that status by satisfying Condition A instead (broadly, because their pay is genuinely linked to the LLP’s overall profits) or Condition C (because their capital contribution is sufficiently high). Where Condition B can no longer be relied upon, these other conditions may become far more important, which is another reason to review your LLP’s structure as a whole, rather than focusing on a single aspect in isolation. Our corporate lawyers are well-versed in analysing and explaining these matters in detail.

Reviewing your LLP

Given the Supreme Court’s narrower interpretation of Condition B, you should review your LLP agreement and governance arrangements without delay. A thorough review should include:

• asking your solicitor to assess how the Supreme Court’s ruling affects your LLP’s specific structure and membership;
• checking that your LLP agreement reflects genuine formally documented decision-making authority, rather than simply describing informal working practices;
• considering capital contributions and the ongoing role of Condition C, which may become more significant for your members who can no longer rely on Condition B; and
• understanding the risk of unexpected PAYE and National Insurance liabilities if your members are miscategorised as self-employed when they should, in fact, be treated as salaried.

How we can help

Our corporate and commercial team regularly advises LLPs and their members on governance, partnership structures and LLP agreements. We understand that every LLP is different, and we take a practical, commercially focused approach to ensuring your documentation reflects how your business genuinely operates.

Where questions of tax treatment or HMRC reporting arise, we are happy to work alongside your accountant or tax adviser to ensure a joined-up approach. However, the starting point is always the legal framework; it is the LLP agreement, and the enforceable rights it creates, that will now determine how your members are taxed. Getting that legal foundation right is where we can add the most value.

If you would like us to review your LLP agreement in light of the BlueCrest decision, our corporate and commercial team would be pleased to discuss your circumstances and help you put appropriate governance in place before HMRC comes knocking.

Please contact Ian Barnard or Richard Wrightson on our corporate and commercial team.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.