2021 is nearly over and what a year it has been! However, before we embrace the holiday spirit and step in to 2022, it’s worth taking a few moments to check-off a few topics on the to-do list:
UK Reporting Fund Status (RFS) – Applications for new funds and share classes need to be submitted to HMRC before the end of the accounting period, which in most cases is 31 December. The RFS regime enables UK individual investors to access capital gains tax rates of up to 20% rather than income tax rate of up to 45% which is the default position for offshore funds. It is a hard deadline that if missed may lead to investors paying substantially more tax. Watch out for UK investors entering into classes that do not have RFS or new classes on different terms, e.g. management share classes.
Unique Taxpayer Reference (UTR) number? The self-assessment 2020/21 deadline for LLPs and individuals is fast approaching on 31 January 2022. However, many new LLPs and partners have not received a UTR yet due to COVID delays at HMRC. Without a UTR for the LLP and every partner, an online submission cannot be made, which will give rise to penalties not only for the LLP but for all of the individual partners. HMRC has pledged to clear its backlog of self-assessment registrations by the end of December, nonetheless LLPs should be checking now that all partners have a UTR.
Performance fees – show me the money? With most performance fees crystallising at the end of the year, the new year will lead to the inevitable question where to book the fees and send the cash. Managers should have a clear idea already on incentivisation structures, but this is the chance to implement new deferral / co-investments mechanisms to align individuals with the manager’s long-term ambitions. The AIFMD deferral mechanism for LLPs is increasing in popularity but can be tricky to implement in the first year. There may also be an overlay in terms of transfer pricing policies as multiple tax jurisdictions demand their piece of the pie.
No surprises! Every year in the run up to the 31 January deadline some individuals are surprised to find that they have inadvertently fallen foul of the UK’s very stringent and wide-ranging anti-avoidance rules. LLPs have the mixed member and salaried member rules to contend with, but asset managers are particularly blessed in this regard as the disguised investment management fee rules apply only to them – an issue often overlooked by personal tax advisors. Determining how these rules apply often requires additional advice – something that is best taken well in advance of when tax returns and payments are due.
Payments on Account (POA) – In terms of performance 2020 was great year for some, but if it has not been matched in 2021 the POAs that HMRC will be expecting on 31 January 2022 will need to be reduced. Work will need to be done quickly to determine how profit allocations may look for 2021/22. Contemporaneous supporting evidence will be required to counter future penalties if the POAs are reduced too far.