Simplification Of UK Partnership Tax Reporting For Investment Fund Partnerships

In the Finance Act 2018, the UK Government enacted a number of changes to the information required in partnership returns that raised the concern of undue and impracticable administrative burden being imposed on UK investment fund partnerships.

The changes covered a number of areas, including requiring a UK partnership that had partnerships amongst its partners and could not identify all of its "indirect partners" to provide computation statements on four bases covering UK resident individuals and companies and non-UK resident individuals and companies. Given that many fund partnerships have other partnerships amongst their investors and that it is likely to be difficult (if possible) to obtain information on all indirect partners, this change will increase the return information that must be provided to HM Revenue & Customs ("HMRC").

In addition, a UK fund partnership is now required to report in its partnership tax return each of its income sources (treating each income source from an underlying partnership in which it is invested as a separate source). This will add administrative complexity for those fund partnerships, such as fund of funds that invest in other partnerships.

One partially welcome change is that investment partnerships no longer have to provide unique taxpayer reference number (UTRs) for non-UK resident partners who are not subject to UK tax on partnership profits where the partnership reports information about them under the Common Reporting Standard (CRS). Unfortunately, this change did not cover the circumstance where a UK fund partnership has non-UK resident partners not subject to UK tax in respect of whom it does not have to report under the CRS for any reason.

These changes are now being applied for the first time in partnership returns being prepared for 31 January for the tax year 2018/2019.

Following extensive discussions of these issues with the British Venture Capital Association, HMRC has updated the guidance in its Partnership and Self-Assessment Manuals with the view to simplifying these new tax compliance obligations. In particular, the new guidance is intended to simplify:

(i) partnership tax return computation statements;

(ii) reports of multiple partnership income sources; and

(iii) requirements relating to UTRs for non-resident partners.

Below is a summary of the scope of each of these changes.

1. Partnership statements for indirect non-resident partners. A partnership that is unable to obtain full...