Section 849: Calculation of firm’s profits or losses
3158.This section contains the basic rules for calculating the profits of a firm. It is based on section 111 of ICTA.
3159.If some of a firm’s partners are resident in the United Kingdom and some are not, the profits of the firm’s trade must be calculated on different bases. For the resident partners, the calculation includes profits arising outside the United Kingdom; for the non-resident partners, the calculation is restricted to profits arising in the United Kingdom.
3160.Section 111 of ICTA is not explicit that the profits may have to be calculated on more than one basis. This section brings together the rules for resident and non-resident partners. Subsection (1) introduces the idea that more than one calculation may be needed.
3161.The source legislation refers to the computation of the profits from the actual trade “for any period”. Profits are calculated for a period of account. So subsections (2) and (3) make it clear that the section applies to a period of account. It is possible for a partner to be both resident (for one tax year) and non-resident (for another) within a single period of account. In such a case, the firm’s profit has to be calculated twice to arrive at the partner’s share of the profits.
3162.Subsection (2) sets out the normal basis for calculating the profits, for an individual resident in the United Kingdom. The profits are calculated as if the firm were an individual resident in the United Kingdom.
3163.Subsection (3) sets out an additional basis for calculating the profits. If the partner (who may be a non-resident company liable to income tax) is not resident in the United Kingdom the profits of the firm are calculated as if the firm were an individual not resident in the United Kingdom.
