HMRC’s advice is for the fund manager to “provide as much information as possible”. Depending on the circumstances, this could include: 

• explanatory entries in the “white space” of the tax return;
• computations showing how the carried interest figures were calculated; and
• a copy of the “tax pack”, assuming that this has been given to the fund manager by the firm they work for.  

Tax packs 

HMRC says that many fund managers are given a tax pack by their firm containing details of the carried interest and other sums they have received. It may also explain how the amounts should be reported on the tax return.  

HMRC acknowledges that it is for firms and fund managers to determine the contents of tax packs. However, to reduce the risk of compliance checks being opened, HMRC “would expect the tax pack to give the individual sufficient information to explain the sums in their return”. This could include: 

• details of the carried interest received by the individual in the tax year (ie, whether the sums are dividends, interest or gains), including guidance on how they should be reported on the tax return;
• details of the underlying fund structures from which carried interest has arisen;
• in respect of gains other than carried interest, details of the acquisition and disposal costs, dates of acquisition and disposal and any other allowable deductions;
• if the individual is making any applicable claims or elections, confirmation that the relevant conditions to make such an election are satisfied; and
• in respect of any amounts to be reported as carried interest, confirmation that the income-based carried interest (IBCI) rules do not apply. 

Reasonable care 

HMRC accepts that the international nature of firms, and the complexity of fund structures, can mean that the information needed to accurately report carried interest will not always be readily available. 

HMRC says that, in general, it will not charge a penalty for an error in a tax return where the fund manager has “used reasonable efforts to obtain the necessary information to file their return”. Relying solely on tax reporting tailored for other jurisdictions to complete a UK tax return, and not taking steps to obtain further information, is unlikely to constitute taking reasonable care, says HMRC. 

Further information 

• IFM37800 - Carried interest: information provided in a tax return - HMRC internal manual - GOV.UK
• IFM37850 - Carried interest: tax packs - HMRC internal manual - GOV.UK
• The government announced significant changes to the tax treatment of carried interest at the Autumn Budget 2024. Read more in this recent article from ICAEW.