UK streamlines tax reporting for foreign partners

UK tax authority HMRC offered a long-term solution for private equity firms concerned with filing tax returns for investment partnerships.

Every year, UK-based partnerships must file a self-assessment tax return that lets HMRC know how profits and revenue were divided amongst the partners. Non-UK partners must apply for a tax identification number to complete this “self-assessment” tax return. However, it has been a long running concern that HMRC isn’t able to issue the numbers in time.

The filing should state the name, address and individual unique tax reference (UTR) number of each partner in the partnership. In the past, HMRC allowed GPs to use dummy UTRs or provide no UTRs for foreign partners, but HMRC recently said that UTRs are now required for all partners, regardless of their domicile.

“This [requesting UTRs] is a long-standing problem,” said one UK tax partner. “The [UTRs] are difficult to get hold of from HMRC and the processes are not streamlined.”

As a solution, HMRC said non-UK partners could use ID number “UTR 57754 43954” as a placeholder until a unique ID number is issued.

This option was originally proposed as a temporary solution back in January to simplify matters for partnerships, but it will now apply on a permanent basis, according to a client memo from law firm King & Wood Mallesons SJ Berwin.

GPs that fail to file the self-assessment tax return face a £100 fine, but advisors warn the bigger risk is reputational damage which LPs may uncover as part of their operational due diligence.