IFM06520 - Tax elected funds (TEFs): breaches of conditions: general provisions

General provisions for breaching a condition of the regime

Regulation 69Z65 of SI2006/964 sets out the process that a manager of a fund must follow if they realise that the fund has breached any conditions of the TEF regime and the potential consequences.

What should a TEF do if it becomes aware it has breached a condition of membership?

If the TEF discovers that it has breached any of the conditions of the regime (see IFM06120 to IFM06160), then under regulation 69Z65 it must write to HMRC (see below) within 28 days of becoming aware of the breach and provide the following information:

  • the date on which the condition first ceased to be met;
  • the date on which the fund became aware of the breach;
  • details of the condition that was breached;
  • the nature of the breach;
  • the steps the fund proposes to take to rectify the breach;
  • the date when the breach was or will be rectified. This must be the earliest date that complying with this condition can reasonably be achieved. (In order for HMRC to determine whether the time specified by the manager is reasonable or not, it is recommended that the manager should advise HMRC what needs to be done in order to rectify the breach, and why the proposed timescale should be considered to be reasonable.); and
  • details of any previous breaches of conditions, specifically: which condition was breached, the date of the breach and the date by which it was rectified.

If desired, the steps to be taken to rectify any breach may be discussed with HMRC before sending a formal notice of the intended rectification.

Consequences of such a breach

If, on receipt of the information above, HMRC believes that:

  • the steps that the fund proposes to take will not rectify the breach;
  • the proposed date to rectify the breach is not the earliest date that remedying the relevant condition can be reasonably be achieved;
  • the fund intentionally or negligently breached a condition; or
  • there are three breaches of the same condition in a period of 10 years (beginning with the first day of the accounting period in which the fund first became aware of the first of the breaches) (multiple breach of the same condition).

then HMRC will issue a termination notice – see IFM06610.

Where should information be sent?

The information should be sent to HMRC’s Collective Investment Schemes Centre.