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News & Insights

UK Crypto Managers

03 May 2022
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When asked a potentially uncomfortable question on his awareness of a topic, Bart Simpson notably replied “As long as you have absolutely no follow-up questions, yes”. This same response might be invoked by those asked “Do you understand crypto?”. Those answering might be concerned by the risk of appearing behind the curve on a growing trend, but flat out terrified that the questioner may test the depth of their understanding.

So, from a UK management company perspective, what are some of the differences (and similarities)? This article explores that very topic.

Fee structure


Crypto funds do typically charge a management fee. This management fee is often:

  • charged monthly
  • paid even if performance is negative
  • paid in advance


The management fee will be paid to the UK fund manager and included in its turnover.

The crypto-assets fund may also pay a placement fee to those introducing investors into it. Where this happens at the level of the fund, however, it need not trouble the books and records of the UK manager. The placement fee does not offset or otherwise reduce the UK manager’s management fee income.

The UK manager will typically be responsible for its own overhead expenses, e.g.,

  • office rent
  • the cost of fixtures & fittings
  • employee salaries & bonuses (including payroll taxes and social security), benefits and travel expenses (including those associated with marketing interests in the fund)
  • entertainment expenses.

Incentive/performance fees or allocations may also be charged to the fund by the UK manager.

So far then, all very familiar for those traditionally operating in the UK alternative asset management space.

Management accounting, Co Sec, tax and payroll


Notwithstanding the above, the UK manager may (exclusively or with the fund’s GP, if relevant) appoint its own placement agent(s). If the manager (rather than the GP) is responsible for paying such an intermediary then, under UK GAAP, it will include a deduction in its books and records for this expense. This is opposed to netting the two fees off (i.e., where the placement agent fee is calculated, for example, as a percentage of management fees).

The UK manager will also record in its books and records all other expenses for which it is liable e.g., those noted above (such as office rent and employee costs).

The UK manager will also record any cash incentive/performance fee as income/turnover. Where the incentive allocation is received in crypto-assets then this will also be accounted for as turnover, based on the value of the asset at the time of receipt. The subsequent accounting treatment of the balance sheet asset is outside the scope of this article.

Regulatory reporting


A UK based manager of a crypto-assets fund may register directly with the Financial Conduct Authority (“FCA”) in order to carry outs its business.

Rather than seek direct authorisation by the FCA, a UK based manager may choose instead to make use of a regulatory hosting platform. The advantages of doing so can include reduced time to launch. While the FCA approval process is not as painful as opening a UK business bank account, it can often take longer than many would wish.

While there are a number of excellent hosting platforms available, UK managers should consider:

  • the cost effectiveness of such an arrangement over the mid to long-term
  • in light of the above, how they might exit such an arrangement if full authorisation is the end goal
  • the FCA’s (2021) comments on such platforms vis-à-vis governance, conflicts of interest management and operational controls. Time invested identifying one of the strong hosting platforms will be time well spent.

While the detailed impact of the Alternative Investment Fund Managers Directive is beyond the scope of this article, Centralis can assist with a UK based manager’s regulatory reporting in respect of a crypto-assets strategy in the same way as we can long-short equity (for example).

UK taxation & payroll


The taxation of cash performance/incentive fee income in the hands of a UK manager is (relatively speaking) straightforward. If the UK manager is a company then the fee income forms part of turnover and therefore, once all allowable expenses have been deducted and other UK tax adjustments made, is included in the company’s profits chargeable to corporation tax.

If the UK manager is a limited liability partnership (“LLP”) then cash performance/incentive fee income is similarly included in turnover and, once adjusted as noted above, forms part of the taxable profits to be allocated amongst the non-Salaried Member partners.

The allowable deductions, when calculating the taxable profits described above, should include cash remuneration (including bonuses) paid directly and promptly to the UK manager’s employees.

Life can get significantly more complicated, however, where the UK manager is either remunerated in crypto-assets or chooses to pay/ incentivise its employees in crypto-assets.

Those operating in the UK alternative asset management industry are likely to already be familiar with the income-based carry or Disguised Investment Management Fee (“DIMF) anti-avoidance rules. If so, such participants will be equally familiar with the exception from these rules in respect of employment-related securities (“ERS”). While HMRC’s view (as stated in their manual CRYPTO21100) is that the payment of crypto-assets to employees does not constitute the award of ERS (as these count as “money’s worth”, and so are subject to UK income tax and (potentially) National Insurance contributions (“NICs”) on the value of the asset):

  • this does not mean the DIMF rules are invoked in such instance. Instead, the crypto-assets received are taxed as general earnings (and so outside the UK anti-avoidance rules for this reason)
  • each case will be fact specific and so the nature of the asset and how the UK business is structured may mean that ERS considerations arise (which may then provide an, albeit potentially complex, route out of the DIMF rules if needed).  

Assuming the crypto-assets awarded to employees are not ERS then, as they are non-cash remuneration, the value received by each employee will, if it constitutes a readily convertible asset (“RCA”), need to be payrolled for UK income tax and NICs. The value included in the payroll will be based on the best estimate of the value of that asset at the earnings date.

HMRC consider that crypto-assets are RCAs if trading arrangements exist or are likely to come into existence (as defined in accordance with the longstanding statutory provisions). HMRC note that exchange tokens like bitcoin can be exchanged in order to obtain an amount of money. On this basis, it is HMRC’s view that ‘trading arrangements’ exist, or are likely to come into existence at the point crypto-assets are received as employment income. If you find yourself in this position, with respect to your employees, we can run the payroll including the best estimate of the value of the asset.

The way in which founders (of the UK manager) are remunerated, which in turn may derive from how the manager is itself remunerated i.e., cash performance fee or allocation of fund assets or securities, has for some years impacted heavily on the decision of “Limited vs LLP”. While UK managers (particularly in hedge) have historically defaulted to LLP, for example in order to:

  • avail of NICs savings where individuals are true (i.e., non-Salaried Member) partners
  • receive the cash flow benefit of individual members being paid gross (rather than after deduction of income tax and NICs)

this decision has become less automatic in recent times. Those wishing to step through the DIMF exception (in respect of ERS) have more recently, after considering the potential impact of and on the Investment Manager Exemption (SP1/01) (“IME”), tended to choose a limited company instead. By way of example:

Assume the UK manager is to receive the performance/incentive through an interest in the fund/its assets (rather than cash, fee income).

As a result of the above remuneration profile, the UK manager wishes to award its founders an interest in the allocation that it may later receive/benefit from. This achieves alignment with fund investors, but doing so while the founders are (non-Salaried) members of a UK LLP may require a detailed analysis of UK anti-avoidance legislation. The conclusion of such analysis may be that a founder’s share of the performance/incentive allocation at the later date is subject to UK income tax and NICs as trading income.

If the founders are employees or directors of a limited company then the interest may instead be an ERS, so:

  • a low award value (potentially subject to income tax and NICs) may be taxed initially
  • the DIMF rules do not apply
  • future growth (subject to the nature of the return and any relevant elections being made) may be subject to UK capital gains tax (rather than income tax and NICs).


These same considerations, with the addition of the IME analysis being influenced by whether the exact fund investment(s) constitute(s) a security, will apply to founders of UK crypto-asset managers.

Whatever the outcome of this debate, Centralis can assist in the:

  • preparation of the manager’s UK business (i.e., corporate or partnership) tax returns
  • tracking of crypto-assets base cost/tax value.

Company Secretarial


Whether the UK manager is established as a limited company or UK LLP will change the specifics of how the entity reports to Companies House. None of these obligations ought to terrify potential UK managers, nor Bart Simpson, and Centralis can assist with these.


Getting in touch


If you wish to discuss the contents of this article, or learn how Centralis can:

  • assist entities prop trading crypto-assets
  • provide administration services to crypto-asset funds

please do not hesitate to get in touch with:


Jon Hanifan
Business Development Director

Adam Hewitson
UK Country Head