Finance Act 1973

31 Partnerships involving companies: effect of arrangements for transferring relief

(1) The provisions of subsection (2) below shall apply in relation to a company (in this section referred to as " the partner company ") which is a member of a partnership carrying on a trade if arrangements are in existence (whether as part of the terms of the partnership or otherwise) whereby—

(a) in respect of the whole or any part of the value of, or of any portion of, the partner company's share in the profits or loss of any accounting period of the partnership, another member of the partnership or any person connected with another member of the partnership receives any payment or acquires or enjoys, directly or indirectly, any other benefit in money's worth; or

(b) in respect of the whole or any part of the cost of, or of any portion of, the partner company's share in the loss of any accounting period of the partnership, the partner company, or any person connected with that company, receives any payment or acquires or enjoys, directly or indirectly, any other benefit in money's worth, other than a payment in respect of group relief to the partner company by a company which is a member of the same group as the partner company for the purposes of group relief.

(2) In any case where the provisions of this subsection apply in relation to the partner company—

(a) the company's share in the loss of the relevant accounting period of the partnership and its share in any charges on income, within the meaning of section 248 of the Taxes Act, paid by the partnership in that accounting period shall not be available for set-off for the purposes of corporation tax except against its share in the profits of the trade carried on by the partnership; and

(b) except in accordance with paragraph (a) above, no trading losses shall be available for set-off for the purposes of corporation tax against the company's share in the profits of the relevant accounting period of the partnership; and

(c) except in accordance with paragraphs (a) and (b) above, no amount which, apart from this subsection, would be available for relief against profits shall be available for set-off for the purposes of corporation tax against so much of the company's total profits as consists of its share in the profits of the relevant accounting period of the partnership ; and

(d) notwithstanding anything in section 85 of the [1972 c. 41.] Finance Act 1972, no advance corporation tax may be set against the company's liability to corporation tax on its share in the profits of the relevant accounting period of the partnership.

(3) In subsection (2) above " relevant accounting period of the partnership " means any accounting period of the partnership ending on or after 6th March 1973 in which any such arrangements as are specified in subsection (1) above are in existence or to which any such arrangements apply; but, in relation to any such accounting period which begins before that date, any reference in subsection (2) above to the company's share in the profits or loss of the accounting period or in any such charges on income as are referred to in subsection (2)(a) above shall be construed as a reference to such proportion only of that share as the part of that period beginning on 6th March 1973 bears to the whole of that period.

(4) If a company is a member of a partnership and tax in respect of any profits of the partnership is chargeable under Case VI of Schedule D, this section shall apply in relation to the company's share in the profits or loss of the partnership as if—

(a) the profits or loss to which the company's share is attributable were the profits of, or the loss incurred in, a trade carried on by the partnership, and

(b) any allowance which falls to be made under section 46(1) of the [1971 c. 68.] Finance Act 1971 (machinery and plant on lease) were an allowance made in taxing that trade.

(5) For the purposes of this section, subsection (2) of section 155 of the Taxes Act (special rules for partnerships involving companies) shall have effect for determining a company's share in the profits or loss of any accounting period of a partnership as if, in the proviso to subsection (1) of that section, in paragraph (b), the words " or for capital allowances and charges " were omitted.

(6) Subject to subsection (7) below, to the extent that the partner company's share in the loss of any accounting period of the partnership is attributable—

(a) to first-year allowances, within the meaning of Chapter I of Part III of the [1971 c. 68.] Finance Act 1971, in respect of expenditure incurred by the partnership on the provision of machinery or plant, or

(b) to writing-down allowances, within the meaning of Chapter II of Part I of the [1968 c. 3.] Capital Allowances Act 1968, or, as the case may require, Chapter I of Part III of the Finance Act 1971, in respect of expenditure incurred by the partnership on the provision of machinery or plant, or

(c) to initial allowances under section 56 of the Capital Allowances Act 1968 (in respect of expenditure on works in connection with mines, etc.) in respect of expenditure incurred by the partnership and falling within section 52(1) of the Finance Act 1971 (expenditure incurred on or after 27th October 1970 on the construction of works in a development area or Northern Ireland), or

(d) to allowances under section 91 of the Capital Allowances Act 1968 in respect of expenditure incurred by the partnership on scientific research,

the partner company's share shall be available, notwithstanding anything in subsection (2) above, for surrender by way of group relief or for set-off under section 177(2) of the Taxes Act against the company's profits of the corresponding accounting period or periods, as defined in section 155(2) of that Act.

(7) Subsection (6) above shall not apply unless—

(a) the partnership of which the partner company is a partner was in existence immediately before 6th March 1973 ; and

(b) after 5th March 1973 there is no change in the proportion of the profits or loss of any accounting period of the partnership which constitutes the partner company's share, other than a change in respect of which the partner company furnishes the inspector with evidence in writing showing that the change results from an agreement entered into before 6th March 1973 ; and

(c) the expenditure concerned is incurred under a contract entered into by the partnership before 6th March 1973.

(8) For the purposes of subsection (6) above, the partner company's share in the loss of any accounting period of the partnership shall be treated as attributable to an allowance falling within any of paragraphs (a) to (d) of that subsection to the extent that it would not have been available for surrender by way of group relief or for set-off as mentioned in that subsection if no such allowance had been available to the partnership in respect of the expenditure concerned.

(9) In this section " group relief " has the same meaning as in section 258 of the Taxes Act and any question whether one person is connected with another shall be determined in accordance with section 533 of that Act.