Private capital executive remuneration is commonly a mixed bag of returns from a variety of sources. This can make the tax analysis complex, and unless detail is provided to it, hard for HMRC to check. To address this, HMRC has now published guidance on the information it would like to see.
What information does HMRC want?
Unsurprisingly, HMRC wants "as much information as possible" in respect of carried interest and provides examples of what this could include. It seems particularly keen to see "tax packs" (information provided to executives by the business containing details of the sums they have received, which may include how to report them in their tax return). Indeed, as well as encouraging the provision of tax packs, HMRC says what it would like to see them contain, giving examples of what, quite detailed, information could be included.
HMRC recognises that there is no statutory obligation on executives to provide the additional information that it wants alongside the tax return. The stick it uses to encourage such provision is, essentially, that without sufficient information individuals are more likely to be subject to compliance checks.
Difficulties in getting information
HMRC recognises that a common problem for executives working in international private capital businesses with complex fund structures is that the information necessary to accurately report carried interest may be hard to get hold of despite their best efforts. It points out that individuals must pay the right amount of tax, but explains that where there are errors in returns, it can only charge penalties where the individual has failed to take reasonable care.
So what is "reasonable care"? HMRC says this will depend on the facts but, in general, an executive should use reasonable efforts to obtain the necessary information, including "asking their firm to provide any information which the fund manager does not have available to them". HMRC confirms that this approach applies to tax packs containing information tailored only for other countries (such as US "K-1" information), saying that it would expect executives to request further information from their firm.
Comment
Executives should consult with their tax advisors as to the level of information they should provide and, if they cannot get full details, whether they have taken sufficient care to prevent penalties arising if it turns out their return is incorrect. This latter point is likely to be especially relevant to individuals working in large international businesses with tax packs not tailored to the UK rules.
HMRC has been emphasising that the tax position of carried interest should be simplified by the introduction of an exclusive trading income charge on it from 6 April 2026. It would, therefore, make sense if this were to lead to a reduction in the information that it asks for from executives.
