UK hedge funds are reviewing their partnership structures and negotiating with HM Revenue & Customs (HMRC) following BlueCrest Capital Management's £200m Supreme Court defeat, which has raised the prospect of substantial backdated tax liabilities across the industry, according to a report by the Financial Times.

HMRC has resumed investigations into several City firms following the landmark ruling, prompting hedge funds, consultancies and law firms structured as limited liability partnerships (LLPs) to reassess the tax status of their partners.

The Supreme Court unanimously dismissed BlueCrest's appeal earlier this year, ruling that most of the hedge fund's 80 to 100 disputed partners should be treated as employees for tax purposes. Only four individuals were found to qualify as genuine partners under the relevant rules.

The decision centres on the UK's salaried member regulations, introduced in 2014 to prevent firms from classifying employees as self-employed partners to avoid employer National Insurance contributions. The rules assess partners' profit-linked remuneration, influence over business decisions and capital contributions.

Advisers report a sharp increase in HMRC inquiries, with firms considering changes to partners' voting rights, management responsibilities and capital commitments to comply with the regulations.

Some firms are also negotiating settlements over historic tax liabilities rather than pursuing litigation. Businesses found to have incorrectly classified partners could face up to six years of backdated National Insurance contributions.

The ruling could also make promotion to partner more restrictive, with firms tightening eligibility requirements or, in exceptional cases, moving individuals onto employee payrolls.

William Wastie, head of professional services at Addleshaw Goddard, said firms would need to review their contractual arrangements to ensure partners meet the requirements for self-employed tax treatment.

The BlueCrest judgment has established a significant precedent for the hedge fund industry, increasing scrutiny of partnership arrangements and potentially raising employment costs for UK-based managers.