HMRC publishes updated guidance on carried interest reporting

HMRC has updated its guidance on reporting carried interest in self-assessment tax returns. These changes will affect individuals receiving carried interest and the organisations they work for.

What has changed?

HMRC views carried interest as a high-risk item and has raised concerns about the difficulties they face when checking the reporting of carried interest in personal tax returns. This has led to an increase in carried interest-related HMRC enquiries over the last few years.

To combat this, the new guidance highlights that reporting insufficient information to HMRC in an individual’s tax return may lead to additional compliance checks. Therefore, to reduce the risk of the additional checks, HMRC have advised individuals to include as much information as possible, including:

• disclosure notes on the individual’s returns
• attaching computations of how the carried interest is calculated
• attaching the ‘tax packs’ which show the sources of carried interest and any reliefs.

HMRC guidance states that a detailed and well-presented tax pack reduces the risk of errors in the individual’s return. It also outlines the information they would expect to see in a ‘tax pack’ (IFM37850).

The guidance also emphasises the importance of reporting carried interest in line with the UK tax basis, rather than “relying on tax reporting tailored for other jurisdictions (for example, a US tax form) to complete a UK tax return year”. This may create challenges for funds that do not produce UK-specific tax reporting, as industry practice has often relied on non-UK reporting where UK reporting was not readily available.

What should you be thinking about?

It is important to note that this is a change in guidance rather than a legal requirement, meaning there is no statutory obligation to provide additional information in the return. However, given the additional administrative and financial cost associated with the increased number of enquiries, the guidance should not be ignored.

Taking this into consideration, firms and fund executives should consider the following key factors.

Considerations for firms

• Does the information we provide align with UK reporting guidance?
• Are we comfortable with individuals attaching our guidance to their self-assessment tax returns?
• Do we provide tax packs that effectively support individuals with preparing their tax returns?
• Are our tax packs sufficiently detailed (e.g. easy to follow calculation of carried interest, instructions on how to report in a UK tax return and any notes based on the most recent legislation)?
• Are our tax packs too detailed? Could attaching them lead to excessive information being provided to HMRC?

Considerations for fund executives

• Have I received UK-specific tax reporting guidance? If not, what steps should I take?
• Should I attach the guidance or tax pack that I have been provided with?
• What disclosure notes should I include in my return?
• Given I have not previously given additional information, is there a risk that my past returns could be subject to enquiry?

Action points

With the new carried interest rules taking effect from 6 April 2026, where the underlying source of carried interest will no longer determine how carry is subject to tax, many of the increased compliance challenges will hopefully be short-term.

However, this does not mean the new guidance can be overlooked. Firms and individuals should carefully consider the above questions and speak with their advisors as early as possible. It is important to note that HMRC will expect increased reporting of carried interest for any returns submitted following the issuance of their new guidance, beginning with the 2024/25 tax year.

For more information on the new HMRC guidance or to discuss individual circumstances, please contact Alex Conway or your usual Crowe contact.