With a number of policy changes coming to fruition in 2019 and the backdrop of poor performance in Q4 2018 for many in the industry we summarise the top 10 UK tax issues for asset managers for the year ahead. Whilst not all will be relevant some will require further thought and investigation:

  1. Reporting Fund Status (RFS) – Reporting funds with a period ended 31 December 2018 will be the first batch of RFS returns where performance fees are non-deductible. This could mean that excess reportable income will be higher than previous periods representing an unwelcome surprise for investors. This should ideally be communicated in advance to manage expectations. However, the relative poor performance in 2018 across the industry may conceal the policy change where no performance fees arise.
  2. Payments on account (POA) – For partners in LLPs the 31 Jan tax return deadline is fast approaching. If 2017/18 was a good year, but performance was hit hard in Q4 2018 then partners should consider making a claim to reduce estimated POAs due on 31 January 2019.
  3. Non-Domiciled Individuals – The deemed-domicile rules have been with us since 2017 – however the opportunity for non-domiciled individuals to cleanse mixed funds is still open until 5 April 2019. For those individuals affected immediate action is required. Also, non-doms with protected trusts holding investments in offshore funds should consider whether they should seek RFS status for their investments. HMRC announced at the end of 2018 that they do not intend to fix the drafting error in the legislation meaning that offshore income gains arising to protected trusts are not protected from UK taxation as originally intended.
  4. Disguised Remuneration (DR) – Some historic incentive structures in the industry used loan mechanisms to defer immediate tax charges on remuneration. Whilst legislation was amended to curtail this planning some years ago for both employees and partners historic loans may still remain outstanding.  All post 1999 DR loans will fall to be taxable as of 5 April 2019 unless immediate action is taken. The rules brought in from 2017 also tax any other remuneration not already subject to tax as trading or employment income.
  5. Profit Fragmentation – From April 2019 managers who previously operated within the transfer pricing SME exemption may now be forced to apply transfer pricing rules. Not only will they need to develop an OECD compliant policy, but it may also be a sensible time to review offshore structures in place, particularly in light of the deemed-domicile rules and economic substance requirements. In reality managers already compliant with the disguised investment management fee (DIMF) rules should have nothing to fear, however many in the industry still do not fully appreciate the scope of the DIMF rules.
  6. Salaried Member / Mixed Member (MM) – Both these rules have been around for some time but are increasingly subject to HMRC scrutiny. The salaried member rules are a forward-looking test for LLPs to prevent individuals being subject to PAYE – this position should be reviewed and documented annually at the start of the tax year – which is April for most partnerships. Additionally, LLPs that allocate profits a corporate member connected to the individual members or which operate a service charge will need to review the quantum involved to avoid being subject to the MM rules. Increased tax bills and penalties will apply, and potentially double taxation in the worst-case scenarios.
  7. Brexit – The outcome is still uncertain, and most managers will have already decided their plan of action. However, for those seeking to reorganise either their business or contractual relationships with funds they should be aware of a potential tax hit arising from a deemed disposal of value out of the UK. This is an area HMRC are following closely and managers should ensure they understand the risks.
  8. Quarterly Instalment Payments (QIPS) – Companies with estimated profits of over £20m will pay QIPS three months earlier for accounting periods starting after 1 April 2019. The £20m is divided amongst the number of companies in group which means in reality it can be much lower than expected. For some businesses this will have severe cash flow implications, particularly asset managers which already struggle because performance fees only crystallise at year end.
  9. Transfer Pricing Documentation – Although the UK has been slow to implement the BEPS project recommendations on local and master files requirements other jurisdictions have already acted. The practical implication is that existing transfer pricing documentation may need to be overhauled in 2019 to structure it in the new format. Managers with old-style documentation should review their position.
  10. Making Tax Digital (MTD) – At long last MTD arrives this year, albeit only for VAT. From April 2019 managers will need to submit their quarterly VAT returns in the required MTD format. Some immediate action may be required to understand the process and the specific requirements.


The above commentary does not constitute tax advice and is general in nature. Those impacted should seek specific advice based on your own facts and circumstances.