The Court of Appeal has ruled that partners at BlueCrest Capital Management, one of the world’s largest investment firms, are liable to pay income tax on part of their remuneration
Following various tribunal hearings, partners at the investment firm run by Michael Platt and William Reeves have been told that they will have to pay tax on earnings from a partner incentivisation plan (PIP) used by the firm from 2008 to 2014.
BlueCrest used the PIP scheme to pay staff in such a way that they would be taxed at the lower rate corporation tax level of 28%, instead of paying income tax at 40% on their earnings.
The method BlueCrest was using had been questioned by HMRC since 2010 but in this appeal related to the time period of 2008 to 2014.
After all four grounds of appeal were rejected at the Upper Tribunal, HMRC came back to the Court of Appeal with two grounds.
HMRC said: ‘In essence, the first ground challenges the Upper Tribunal’s conclusion that the awards had the character of income, while the second ground challenges its conclusion that the awards had a taxable source in the decision of the corporate partner to make them.’
The Judge, Lord Justice Lewison, ruled in favour of HMRC and referenced the decision at the Upper Tribunal on HMRC’s case regarding miscellaneous income, saying: ‘The analogy which Mr [Malcolm] Gammie KC drew between the PIP and a partner who makes withdrawals of capital from the partnership is not exact and may be apt to mislead.
‘Where a partner who reinvested his or her profit allocation back into the partnership and then later withdrew it as capital, we might well accept that the ultimate source was the partnership trade.’
The Judge stated: ‘I conclude in agreement with both tribunals that the source requirement is also met, with the result that the partners who received final PIP awards are liable to income tax.’
He added that any ‘potential for annual recurrence, coupled with the need to calculate the profit in any one year, are at least pointers to the awards having the quality of income.
‘It is in my judgment entirely legitimate to rely on an overall assessment of this nature when answering the question whether the awards were of an income nature.
‘I conclude that, as a matter of law, the PIP awards had the character of income, and I also consider that the ejusdem generis requirement is clearly satisfied.’
Accordingly, the Court dismissed both HMRC’s appeal and the partnerships’ appeal.
Useful links
BlueCrest ruling, Court of Appeal [2023] EWCA Civ 1481
BlueCrest LLP loses £100m UT tax appeal [21 Sep 2023]