BlueCrest loses appeal over tax on partner pay

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Partners at billionaire Michael Platt’s investment firm BlueCrest Capital are liable for income tax on a pay scheme dating back to 2008 after the firm largely lost a legal battle at the Court of Appeal.

A plan by the UK-headquartered group to retain staff through so-called special capital should attract income tax rather than the lower-rate corporation tax as the firm intended, the court in London has ruled.

BlueCrest — at one point one of the biggest hedge funds in the world — drew up the Partner Incentivisation Plan scheme to retain employees in a “highly competitive market”, the court said. The scheme first attracted the scrutiny of the UK’s tax authority in 2010, according to the ruling that was handed down last week.

One of the presiding judges at the appeals court, Sir Launcelot Henderson, concluded in the judgment that “as a matter of law, the PIP awards had the character of income”.

“It is important not to be mesmerised by the word ‘capital’ in the phrase ‘special capital’,” the judge wrote in a decision first reported by Bloomberg. “The phrase is no more than a label.”

“Partners who received final PIP awards are liable to income tax,” he added in the ruling on the case, which was also heard by Lord Justice Lewison and Lady Justice Falk.

HM Revenue & Customs said on Thursday that it was “pleased” with the decision. “We are committed to pursuing those who use contrived arrangements to avoid paying their share of tax.”

The Court of Appeal upheld an earlier decision that ruled against HMRC over how the firms profits were allocated under the incentive scheme.

BlueCrest declined to comment.

The firm, which at its peak ran about $36bn in assets and was one of the world’s best-known macro hedge funds, announced at the start of December 2015 that it would stop managing money for outside clients and convert to a family office, following a drop in assets and a run of weak returns.

BlueCrest, which still uses a partner incentivisation plan, now primarily trades bond strategies in developed and emerging markets though has been expanding into commodities.