Income Tax (Trading and Other Income) Act 2005

850 Allocation of firm’s profits or losses between partners

(1) For any period of account a partner’s share of a profit or loss of a trade carried on by a firm is determined for income tax purposes in accordance with the firm’s profit-sharing arrangements during that period.

This is subject to subsections (2) and (4).

(2) If for the period of account the calculation under section 849 in relation to the partner produces a profit, but there is at least one loss-making partner—

(a) each loss-making partner’s share is neither a profit nor a loss, and

(b) each profit-making partner’s share is given by the formula in subsection (3).

(3) The formula is—

where—

• FP is the amount of the firm’s profit calculated under section 849 in relation to the partner,

• PP is the amount determined under subsection (1) to be the profit of the profit-making partner in question, and

• TP is the total of the amounts determined under subsection (1) to be the profits of all the profit-making partners.

(4) If for the period of account the calculation under section 849 in relation to the partner produces a loss, but there is at least one profit-making partner—

(a) each profit-making partner’s share is neither a profit nor a loss, and

(b) each loss-making partner’s share is given by the formula in subsection (5).

(5) The formula is—

where—

• FL is the amount of the firm’s loss calculated under section 849 in relation to the partner,

• PL is the amount determined under subsection (1) to be the loss of the loss-making partner in question, and

• TL is the total of the amounts determined under subsection (1) to be the losses of all the loss-making partners.

(6) In this section—

• “loss-making partner” means a partner whose share is determined under subsection (1) to be a loss,

• “partner”, in relation to a firm, means any partner in the firm, whether or not chargeable to income tax,

• “profit-making partner” means a partner whose share is determined under subsection (1) to be a profit, and

• “profit-sharing arrangements” means the rights of the partners to share in the profits of the trade and the liabilities of the partners to share in the losses of the trade.