Income Tax (Trading and Other Income) Act 2005

Firms with trading income U.K.

852 Carrying on by partner of notional trade U.K.

(1) For each tax year in which a firm carries on a trade (the “actual trade”), each partner's share of the firm's trading profits or losses is treated, for the purposes of Chapter 15 of Part 2 (basis periods), as profits or losses of a trade carried on by the partner alone (the “notional trade”).

(2) A partner starts to carry on a notional trade at the later of—

(a) when becoming a partner in the firm, and

(b) when the firm starts to carry on the actual trade.

This is subject to subsection (3).

(3) If the partner carries on the actual trade alone before the firm starts to carry it on, the partner starts to carry on the notional trade when the partner starts to carry on the actual trade.

(4) A partner permanently ceases to carry on a notional trade at the earlier of—

(a) when the partner ceases to be a partner in the firm, and

(b) when the firm permanently ceases to carry on the actual trade.

This is subject to subsections (5) and (6).

(5) If the partner carries on the actual trade alone after the firm permanently ceases to carry it on, the partner permanently ceases to carry on the notional trade when the partner permanently ceases to carry on the actual trade.

(6) If—

(a) the firm carries on the actual trade wholly or partly outside the United Kingdom, and

(b) the partner becomes or ceases to be UK resident,

the partner is treated as permanently ceasing to carry on one notional trade when the change of residence occurs and starting to carry on another immediately afterwards.

(7) Subsection (6) does not prevent a loss made before the change of residence from being [F1 deducted under section 83 of ITA 2007 from] profits arising after the change.

Textual Amendments

F1 Words in s. 852(7) substituted (with effect as stated in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), ss. 1027, 1034, Sch. 1 para. 579 (with transitional provisions and savings in Sch. 2)

853 Basis periods for partners' notional trades U.K.

(1) The basis period of a partner's notional trade is determined by applying the rules in Chapter 15 of Part 2 as if—

(a) the trade were carried on by an individual, and

(b) its accounts were drawn up to the same dates as the accounts of the actual trade.

This is subject to subsection (2).

(2) If, on the assumption that the actual trade is carried on by an individual,—

(a) section 216 (change of accounting date in later tax year) would apply in relation to the actual trade, but

(b) the basis period for the actual trade would be given by subsection (4) of that section (ineffective change of accounting date), because the conditions in section 217 (conditions for basis period to end with new accounting date) would not be met in relation to that trade,

the accounts of the actual trade are treated for the purposes of subsection (1) as drawn up to the old accounting date.

(3) For the purposes of determining whether, on the assumption that the actual trade is carried on by an individual, the conditions in section 217 would be met in relation to that trade—

(a) a notice under section 217(2) must be given by one of the partners in the firm nominated by them for the purposes of this subsection, and

(b) any appeal under section 218(4) against a notice by [F2 an officer of Revenue and Customs] must be made by a partner so nominated.

(4) Section 207 (treatment of business start-up payments received in overlap period) applies as a result of this section in relation to a partner's notional trade so that—

(a) the requirement in subsection (1)(a) of that section becomes a requirement that the partner's share of the firm's profits so far as attributable to a business start-up payment falls within two basis periods, and

(b) the reference in subsection (2) of that section to the payment is a reference to any part of the partner's share of the firm's profits which is so attributable.

Textual Amendments

F2 Words in s. 853(3)(b) substituted (18.4.2005) by Commissioners for Revenue and Customs Act 2005 (c. 11), ss. 50, 53(1), Sch. 4 para. 132(1); S.I. 2005/1126, art. 2(2)(h)