02.35 – Identification and reporting on interest in a Collective Investment Scheme

The diagram below illustrates how HMRC believes the account identification and reporting obligations under the Regulations should work for Collective Investment Schemes.


Depending on how the fund is structured, various entities may fall within the definition of Investment Entity. However, as set out at 2.32 above, provided the fund is a Collective Investment Scheme, only the fund has obligations under the Regulations. The fund itself will need to determine which entity carries out the obligations to identify, verify and report on account holders that are Specified US Persons, by reference to its own governance structure and contractual arrangements.

Example 1

Authorised funds in the UK (which are Authorised Unit Trusts, Open-Ended Investment Companies, and Tax-Transparent Funds) are required to have a fund manager that acts as the operator of the fund and is normally assigned responsibility for fulfilling the regulatory obligations of the fund.

Therefore, the fund manager will normally have responsibility for compliance with the obligations about the Financial Accounts of the Fund under the UK legislation. In turn, fund operators typically use third party service providers to provide fund administration, including maintaining records of investors, account balances and transaction services provided by the transfer agent. In these cases, the fund manager might appoint the third party service provider to fulfil account identification and reporting requirements as they will have the necessary records.

The fund’s account identification and reporting obligations apply only to its immediate account holders. It is required to identify all direct individual account holders under the due diligence obligations outlined in this Guidance. Any indirect individual account will be held through a Financial Institution (for example a platform or other nominee), and the fund’s obligation is to identify the direct account holder (such as the Financial Institution) only. In turn, the intermediary Financial Institution will have its own obligation to identify and report on its account holders.

In the diagram, the fund would only need to identify any direct individual account holders (shown on the left-hand side), and the Financial Institutions on the share register. It would be required to report information on any of these that are Specified US Persons.

In turn Custodial Institutions that act as distributors (and not the fund) would be required to identify and report on their direct account holders. The Fund has no obligation to identify and report on accounts held indirectly through other Financial Institutions.

Investment Trust Companies (ITC’s) and Venture Capital Trusts (VCT’s)

 ITC’s and VCT’s are classified in the Regulations as Investment Entities.

Although the ITC or VCT will be a Reporting UK Financial Institution, it will not generally need to report on its shares and securities that are regularly traded on an established securities market as these will not be Financial Accounts. Accordingly, in many scenarios it will simply need to file a nil return with HMRC unless it maintains other Financial Accounts. For further guidance on “regularly traded on an established securities market” please see Section 3.10.

To be treated as a VCT or ITC, the entity must be approved by HMRC for the general purpose of either the Venture Capital Trust scheme or, in relation to ITC’s, meet the conditions in section 842 ICTA 1988.

Guidance on the requirements for approval required by HMRC can be found in the following HMRC Manuals
· Re VCT’s: http://www.hmrc.gov.uk/manuals/vcmmanual/index.htm

· Re ITC’s: http://www.hmrc.gov.uk/manuals/ctmanual/CTM47110.htm

ITC and VCT shares and securities are invariably listed on the London Stock Exchange and so, subject to the conditions set out in Section 3.10 should meet the requirement of “regularly traded on an established securities market” and will not constitute “Financial Accounts”.

Where an ITC is in a members voluntary liquidation, it will be deemed to meet the regularly traded condition providing no new investments are made.