BlueCrest – all about salaried members – our briefing is here.
In the recent case of HMRC v BlueCrest Capital Management (UK) LLP [2023] UKUT 00232, the Upper Tribunal (UT) had to consider cross-appeals from HMRC and the taxpayer in relation to a highly fact sensitive dispute.
A decision of the First-tier Tribunal (FTT) can only be appealed if the tribunal has made an error of law. However, if, based on findings of fact, the FTT comes to a conclusion that no reasonable tribunal could have reached, this is treated as an error in law and so can be appealed. This is often known as an Edwards v Bairstow challenge (after the case in which the classic articulation of the principle is found).
BlueCrest involved a dispute relating to the salaried members rules. Under those rules, members of an LLP are treated as employees for tax purposes unless one of three exclusions apply. The FTT had rejected BlueCrest's argument that all of its members fell within the exclusion for not having "disguised salary" but accepted that some of the members were within the exclusion for having "significant influence" over the affairs of the LLP. BlueCrest appealed the disguised salary finding and HMRC appealed the significant influence one, including on Edwards v Bairstow grounds.
The UT firmly upheld the FTT's decision. In doing so, it made some important observations on points of law in relation to the salaried members rules, and made clear that the issue of whether the exclusions applied very much depended on the specific circumstances of the LLP.
In relation to HMRC's and BlueCrest's Edwards v Bairstow challenges, the UT, having given a helpful overview of the relevant case law, made clear that there is a "high threshold" for success and gave short shrift to the parties' arguments. In particular, it pointed out that the FTT had heard all of the evidence whereas it was being pointed to selected extracts by the parties, and, accordingly, refused to undertake an exercise of "island hopping" (amongst the "sea of evidence").
This case emphasises the difficulties taxpayers (and HMRC) face when seeking to overturn an FTT decision under an Edwards v Bairstow challenge. It will be hard to persuade the UT that the FTT has reached an irrational conclusion, and so careful thought should be given before appealing on these grounds, particularly where it is the sole basis of appeal.
