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Returning sums chargeable under the disguised investment management fees (DIMF) rules

Reporting period

Sums that arise and are subject to the disguised investment management fees (DIMF) rules should be reported in reference to the tax year.聽 Calendar year reporting is not acceptable unless the disguised fee arises from a profit allocation from a partnership. In these circumstances, this can be returned on the same basis period as that partnership see (IFM36160).

If a sum has been reviewed and DIMF is not believed to be applicable then a note should be included within the white space section that adequately explains why DIMF is not applicable in this case.

For example, if accounts for a partnership are drawn up to the 31 December 2016, and it has been agreed that the profits shown in those accounts are taxed as profits of 2016/17, then the same basis can be applied to the deemed trade.

How to return sums chargeable under these provisions

Sums that arise and are subject to the DIMF rules should be entered on a separate Self-Employment page and returned within the Self-Assessment return.

On the return, the following fields should be completed, with the individual entering:

鈥淒escription of business鈥� field: 鈥渟ums arising under Chapter 5E of Part 13 ITA 2007鈥�.

鈥淣et profit or loss鈥� field: The net profits under the DIMF rules.

鈥淭otal taxable profits or net business loss鈥� field: The net profits under the DIMF rules.

鈥淲hite space鈥�: Details of each sum of the fund in relation to the individual and structure from which the sum arises should be noted in the computations or as a 鈥榳hite space鈥� disclosure.

In most cases HMRC expect that the sum will arise from a fund limited partnership potentially via a General Partner Limited Partner (GP-LP) or similar. The exact wording of the necessary disclosure will depend on the structure and the number of entities through which the sum has passed.

Where disguised fees arise from more than one fund or partnership then an analysis should be provided showing the sums arising from each.

Example of a return of DIMF profits

Greg is a partner in CD LLP, Greg pays income tax and class 4 NICs on his share of CD LLP鈥檚 profits. In addition 拢20,516 is treated as a disguised fee under the DIMF legislation.

Greg will need to report the fees as a separate trade on his tax return. He would enter the following on a separate Self-Employment page within his Self-Assessment:

Description of business field: sums arising under Chapter 5E of Part 13 ITA2007.

Net profit or loss field: 拢20,516.

Total taxable profits or net business loss field: 拢20,516.

White space: Disguised investment management fee arising from X Capital Fund LP via X Capital Fund GP LP.