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HMRC internal manual

Offshore Funds Manual

Reporting funds: computation of reportable income: Equalisation: Introduction

‘Equalisation’ refers to arrangements that enable the income that existing investors receive (or have allocated to them) from a fund to be unaffected by new investors purchasing units in a fund. Such arrangements will affect the calculation of reportable income to be reported to unit holders at the end of the period in which the new units are issued.

The method by which reportable income is computed is dependant on whether the reporting fund:

  • Operates equalisation arrangements (see OFM24620)
  • Operates full equalisation arrangements (see OFM24630)
  • Operates no form of equalisation (see OFM24660)

A reporting fund operates equalisation arrangements or full equalisation arrangements if it has given a statement in its application that it intends to operate such arrangements (see OFM21300).

If a fund operates either full equalisation or equalisation, adjustments will be made to reportable income under regulation 72. The difference between these two methods of operating equalisation is that an equalisation amount will be included in the report to investors where a fund operates full equalisation, whereas no equalisation amount is reported to investors where only equalisation is operated.