Thin end of the wedge? LLPs brace for major tax overhaul
The maths genius behind trading firm XTX, Alex Gerko, stands high in the rankings of Britain’s top taxpayers, having paid more than £330m to HMRC last year. For good measure, he also handed out more than £150m to charities and good causes in 2025, focusing on education and supporting talented math graduates to pursue PhDs and advanced research.
With profits at his firm (which employs fewer than 200 people) touching £2bn, the whole thing seems to be working rather well for Gerko, his staff, the charities he supports and the exchequer. But change is afoot.
HMRC recently won a case against Gerko’s firm that centred on the tax treatment of income versus capital gains at LLPs. As a result, Gerko was told to pay an extra £22.5m. Little wonder he describes living in the UK as “a radicalising experience.”
Yesterday, another Supreme Court ruling on the tax arrangements of LLPs sent fresh jitters through the City. Hedge fund BlueCrest, founded by one of the UK’s wealthiest financiers, Michael Platt, had maintained that as an LLP its senior traders were self-employed, but HMRC successfully argued they were in fact salaried employees and that income tax and national insurance must be paid. The ruling will cost BlueCrest around £200m and in response the firm has said “the UK is no longer a serious contender as a jurisdiction in which to do business.”
These rulings might appear to target the tax arrangements of two astonishingly wealthy individuals, but the implications are profound and the consequences could reach deep into corporate Britain. Although the XTX and BlueCrest cases were different and each concerned the firms’ own complex partnership structures, the Supreme Court decisions could lead to HMRC taking a much tougher line on a wide range of limited liability partnerships across finance and professional services. The rulings tighten the taxman’s definitions of concepts such as “disguised salary” and “significant influence” – key considerations when evaluating whether a partner is treated as self-employed or as a salaried employee.
While some City voices say the rulings provide useful clarity, there’s no doubt that many fear the action taken against two specific examples could be the thin end of the wedge. It also won’t be lost on any LLP that the government is almost certainly going to be on the hunt for fresh revenue-raising measures come the Budget, and the idea of closing a National Insurance ‘loophole’ could prove irresistible.