IFM36160 - Overview: Commencement provisions

Commencement Provisions

Commencement and sums arising

Amounts arising are deemed to be the profits of a trade and should be returned separately from any other profits. More information on how to report profits from the deemed trade is found at IFM36800.

As they are the profits from the trade it follows that no expenses can be set against the disguised fees.  

Losses cannot arise from this deemed trade. 

Year of assessment

The disguised investment management fees (DIMF) legislation has effect from 6 April 2015. From this date profits are taxed on an arising basis (i.e. as profits of the tax year in which they arise).

So if a disguised fee arises between 6 April 2015 and 5 April 2016 for example, it will be a profit of 2015/16.

No special commencement provisions apply, the profits of each tax year are the amounts that arise in that year.

Example 1

Debbie is an investment manager working for a fund manager LLP.  Debbie has received management fees, on 31 December 2014, in relation to investment management services in respect of a collective investment scheme.

The DIMF rules would not be applicable in this situation as the fee arises prior to the DIMF rule commencement date of 6 April 2015.  This is still true even if the fees would have met the “disguised fee” criteria under ITA07/S809EZA.

Example 2

Umara is an investment manager working for a fund manager LLP. On 30 June 2015 she receives untaxed (IFM36325) management fees of £10,000 in relation to arrangements made when a new collective investment scheme was established on 1 July 2014.

The DIMF legislation does apply as the sum arises (IFM36316) to Umara after 5 April 2015 and it does not matter that the arrangements were set up prior to 6 April 2015. The tax point for the disguised investment management fee is 30 June 2015 and so it is taxed as income of 2015/16.

Partnerships

If the disguised fee arises from a profit allocation from a partnership, the profits from the deemed trade under ITA07/S809EZA(1) and (2) can be returned on the same basis period as that partnership, rather than using the tax year.

For example, if accounts for a partnership are drawn up to 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.

Payments arising after retirement

A partner who retires in one tax year, is subject to a charge under the DIMF rules when sums arise to them in subsequent tax years, i.e. even when they are no longer performing investment management services.