IFM12722 - Offshore Funds: Reporting funds: breaches of reporting fund conditions: types of breaches: difference between reported income and reportable income

Regulation 110 of SI 2009/3001

It is important that a reporting fund correctly calculates its reportable income (regulation 63 - see IFM12500 onwards), because if it does not then the income reported to the fund’s UK investors will in turn be incorrect.

Where there is a difference between the correct reportable income of a reporting fund for a period of account, and the reported income of the fund for all reporting periods comprised in the period of account, there may be a breach of the regulations. To determine this, once it has been established that the computation of reportable income was incorrect, two figures must be compared for each reporting period comprised in the period of account -

(a) the amount of the reported income for that reporting period, and

(b) the amount of the correct reportable income for the period of account that is referable to that reporting period.

Where HMRC conclude that the difference between the two is more than 10% of the reportable income, they must give notice to the fund of that conclusion.

Whether there has been a breach of the regulations will depend on the difference between those two figures, as follows.

Difference of 10% or less

If the difference between the two amounts above is 10% or less of the reportable income, there is no breach of the regulations (note, this assumes the error was inadvertent).

Difference more than 10% but not more than 15%

Where there is a difference of more than 10% there is a breach (unless Regulation 108(5) applies (see IFM12721) - for example where a fund amends its computation of reportable income without HMRC intervention).

If there is a breach, an amount equal to the difference must be added to the reported income:

• for the reporting period in which the error is established;
• for the following reporting period; or
• in a supplementary report for the period of account in which the difference occurred within 3 months of the end of the period of account in which the error is established. The supplementary report must be made to any investor who held an interest in the fund at the end of the period of account in which the difference occurred. If the supplementary report is made as soon as reasonably possible, there is a minor breach, but otherwise there is a serious breach (see IFM12730 onwards - consequences of breaches).

Difference more than 15%

If the difference between the two amounts is more than 15% of the reportable income, the reporting fund must make a supplementary report to investors for the period of account in which the difference occurs within 3 months of the end of the period of account in which the error is established. The supplementary report must be made to any investor who held an interest in the fund at the end of the period of account in which the difference occurred. If the supplementary report is made as soon as reasonably possible, there is a minor breach, but otherwise there is a serious breach (see IFM12730 onwards - consequences of breaches).