Income Tax (Trading and Other Income) Act 2005

Calculation of partners' shares

849 Calculation of firm’s profits or losses

(1) If—

(a) a firm carries on a trade, and

(b) any partner in the firm is chargeable to income tax,

the profits or losses of the trade are calculated on the basis set out in subsection (2) or (3), as the case may require.

(2) For any period of account in which the partner is a UK resident individual, the profits or losses of the trade are calculated as if the firm were a UK resident individual.

(3) For any period of account in which the partner is non-UK resident, the profits or losses of the trade are calculated as if the firm were a non-UK resident individual.

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.

851 Calculations etc. where firm has other income or losses

(1) This section applies if—

(a) sections 849 and 850 apply in relation to the profits or losses of a trade carried on by a firm, and

(b) the firm has other income or losses.

(2) Those sections also apply as if references to the profits or losses of the trade were references to the other income or losses.