BlueCrest Slams UK as Bad for Business After Top Court Tax Case Loss
Michael Platt’s BlueCrest Capital Management said the UK is “no longer a serious contender” as a place to do business after the firm lost a £200 million ($265 million) UK Supreme Court ruling over how some of its senior traders should be taxed.
Wednesday’s ruling focused on how payouts for traders should be treated when they come from a Limited Liability Partnership. The panel of five judges at the UK’s highest court unanimously rejected BlueCrest’s appeal that some of its staff should be treated as members who share in the profits of the partnership and not taxed at the normal income tax rate.
The Supreme Court ruled that most of their remuneration was “disguised salary,” as the payments were varied on a discretionary basis and not set solely by the profits or losses of the partnership. The judges on Wednesday also upheld a lower court ruling that most of the staff in the partnership were not wielding “significant influence” in their roles working for the investment firm.
“Businesses operating in the UK need to be able to rely on HMRC’s guidance to organize their tax affairs with certainty,” BlueCrest said after the ruling. “Without that certainty, and in an increasingly competitive global market, the UK is no longer a serious contender as a jurisdiction in which to do business.”
Platt’s BlueCrest is the latest finance firm to decry what it sees as an uncompetitive and unfair tax system in the UK. Alex Gerko, the billionaire founder of trading firm XTX Markets Ltd., lost a separate Supreme Court tax case last month and took to LinkedIn to air his own frustrations with HMRC.
Paul Marshall — whose London hedge fund runs more than $93 billion in assets and who co-owns a right-wing news channel — outlined a list of complaints when unveiling plans for an Abu Dhabi outpost in December 2024.
Wide Reverberations
BlueCrest, founded in 2000 by Platt and fellow trader William Reeves, returned client money in 2015 and is now managing the wealth of Platt and some of his partners. In 2023, the investment firm lost a different legal fight with British authorities over the tax treatment of a pay plan designed to retain some of the fund’s senior traders, and sued a lawyer it hired for legal advice on that case.
While the appeal was brought by BlueCrest, the ruling is likely to have wide reverberations across many of London’s investment firms. In 2021, HM Revenue & Customs launched a tax inquiry into two other major London-based hedge funds — CQS UK LLP and Cheyne Capital Management Ltd. A filing for CQS shows the matter has been postponed until the conclusion of this case.
“This will have implications well beyond BlueCrest,” said Bruno Schneller, managing partner at multifamily office Erlen Capital Management. “I expect a number of firms will now have to revisit their remuneration structures.”
Partners in LLPs — commonly used by professional services firms — are not subject to certain employment taxes, including employer National Insurance contributions, giving them a tax advantage over other employees.
Where an LLP member meets conditions under the salaried member rules, they are treated as employees rather than a self-employed partner for tax purposes. Conversely, if they fail to meet at least one condition, they fall outside the scope of the rules and are taxed as partners. The ruling likely leaves BlueCrest liable for £143 million in income tax payments and more than £55 million in National Insurance contributions.
‘Disguised Salary’
Two conditions that need to be satisfied for an LLP member to be a salaried member, and therefore subject to higher taxes, were put before the Supreme Court to be assessed as part of the case.
First, that the members of the partnership were receiving a so-called “disguised salary,” whereby the bulk of their remuneration was not dictated by the profits and losses of the LLP. In BlueCrest’s case, the remuneration was set based on the success of the traders in making money for the investment firm.
“Portfolio managers and desk heads employed by fund management funds or similar financial institutions are commonly remunerated by reference not to the profits of the firm as a whole but to the profits generated by themselves or their team,” the judges said in their ruling. “It is not determined by reference to, or in an substantial way linked to, the overall profits of BlueCrest.”
The second condition that had to be satisfied for a member to be subject to the higher tax liabilities was that they did not exert “significant influence” over the affairs of the partnership. This issue was reassessed earlier at the Court of Appeal, where it was decided that more of BlueCrest’s staff were covered by this condition that the initial tribunal decided. The Supreme Court upheld the Court of Appeal’s ruling.
BlueCrest was far from the only investment firm to conduct their tax affairs in this way, and the full impact remains to be seen. Tax experts have said that they expect the case to have far reaching consequences for many asset managers that structured their firms as partnerships.
“BlueCrest will be disappointed by today’s decision,” said Paul Hale, a managing director at the Alternative Investment Management Association. “For the wider industry, however, the judgment provides some much-needed clarity.”
Photograph: City of London; photo credit: Jose Sarmento Matos/Bloomberg