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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
, see all updates

Tax elected funds (TEFs): breaches of conditions: general provisions for breaching a condition

General provisions for breaching a condition of membership

The general provisions in regulation 69Z65 SI2006/964 set out the process that a manager of a fund must comply with if they realise that the fund has breached any conditions of the regime and the potential consequences of such a breach. The following two pages, that is CTM48963 to CTM48964, explain specific breaching rules that apply to each condition.

What should a TEF do if it becomes aware it has breached a condition of membership?

If the tax elected fund (TEF) discovers that it has breached any of the conditions of the regime (see CTM48912 to CTM48916), then under regulation 69Z65 SI2006/964 it must write to HMRC (address shown below) within 28 days of becoming aware of the breach and provide the following information:

  • the date on which the condition first ceased to be met;
  • the date on which the fund became aware of the breach;
  • details of the condition that was breached;
  • the nature of the breach;
  • the steps the fund proposes to take to rectify the breach;
  • the date when the breach was or will be rectified. This must be the earliest date that complying with this condition can reasonably be achieved. (In order for HMRC to determine whether the time specified by the manager is reasonable or not, it is recommended that the manager should advise HMRC what needs to be done in order to rectify the breach, and why the proposed timescale should be considered to be reasonable.); and
  • details of any previous breaches of conditions, specifically; which condition was breached, the date of the breach and the date by which it was rectified.

If desired, the steps to be taken to rectify any breach may be discussed with HMRC before sending a formal notice of the intended rectification.

Consequences of such a breach

If, on receipt of the information above, HMRC believes that:

  • the steps that the fund proposes to take will not rectify the breach;
  • the proposed date to rectify the breach is not the earliest date that remedying the relevant condition can be reasonably be achieved;
  • the fund intentionally or negligently breached a condition; or
  • there are three breaches of the same condition in a period of 10 years (beginning with the first day of the accounting period in which the fund first became aware of the first of the breaches) (multiple breach of the same condition)

then HMRC will issue a termination notice. For further information on termination notices please refer to CTM48971.

Where should information be sent to?

The information required under regulation 69Z65 SI2006/964 should be submitted to:

Andrew Marshall
HM Revenue & Customs
Collective Investment Schemes Centre
Concept House
5 Young Street
S1 4LB

Tel: 0114 2969361