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consequence of arrangements the main purpose, or one of the main
purposes, of which is to secure that section 850C does not apply for
one or more periods of account in relation to—

(a) the member, or

(b) 5the member and one or more other members of the limited
liability partnership.

(5) In this section “arrangements” includes any agreement,
understanding, scheme, transaction or series of transactions
(whether or not legally enforceable).

2 10In Part 17 of CTA 2009 (partnerships) after section 1273 (limited liability
partnerships) insert—

1273A Limited liability partnerships: salaried members

(1) Subsection (2) applies at any time when section 863A(2) of ITTOIA
2005 (limited liability partnerships: salaried members) applies in the
15case of an individual (“M”) who is a member of a limited liability
partnership in relation to which section 1273(1) applies.

(2) In relation to the charge to corporation tax on income, for the
purposes of the Corporation Tax Acts—

(a) M is to be treated as being employed by the limited liability
20partnership under a contract of service instead of being a
member of the partnership, and

(b) accordingly, M’s rights and duties as a member of the limited
liability partnership are to be treated as rights and duties
under that contract of service.

25Supplementary provision: deductions

3 (1) ITTOIA 2005 is amended as follows.

(2) At the end of Chapter 5 of Part 2 (trade profits: rules allowing deductions)
insert—

Limited liability partnerships: salaried members
94AA 30 Deductions in relation to salaried members

(1) This section applies in relation to a limited liability partnership if
section 863A(2) (limited liability partnerships: salaried members)
applies in the case of a member of the partnership (“M”).

(2) In calculating for a period of account under section 849 (calculation
35of firm’s profits and losses) the profits of a trade carried on by the
limited liability partnership, a deduction is allowed for expenses
paid by the partnership in respect of M’s employment under section
863A(2) if no deduction would otherwise be allowed for the
payment.

(3) 40This section is subject to section 33 (capital expenditure), section 34
(expenses not wholly and exclusively for trade etc), section 45
(business entertainment and gifts) and section 53 (social security
contributions).

(3) In Chapter 3 of Part 3 (profits of property businesses: basic rules), in the table

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in section 272(2) (application of trading income rules), after the entry for
section 94A insert—

section 94AA deductions in relation to salaried members
of limited liability partnerships.

4 (1) 5CTA 2009 is amended as follows.

(2) At the end of Chapter 5 of Part 3 (trade profits: rules allowing deductions)
insert—

Limited liability partnerships: salaried members
92A Deductions in relation to salaried members

(1) 10This section applies in relation to a limited liability partnership if
section 1273A(2) (limited liability partnerships: salaried members)
applies in the case of a member of the partnership (“M”).

(2) In calculating for an accounting period under section 1259
(calculation of firm’s profits and losses) the profits of a trade carried
15on by the limited liability partnership, a deduction is allowed for
expenses paid by the partnership in respect of M’s employment
under section 1273A(2) if no deduction would otherwise be allowed
for the payment.

(3) This section is subject to—

(a) 20section 53 (capital expenditure),

(b) section 54 (expenses not wholly and exclusively for trade etc),

(c) section 1298 (business entertainment and gifts), and

(d) section 1302 (social security contributions).

(3) In Chapter 3 of Part 4 (profits of property businesses: basic rules), in the table
25in section 210(2) (application of trading income rules), after the entry for
section 92 insert—

section 92A deductions in relation to salaried members
of limited liability partnerships.

(4) In Chapter 2 of Part 16 (companies with investment business: management
30expenses)—

(a) in section 1224(1) (accounting period to which expenses are
referable) for “1227” substitute “1227A”, and

(b) after section 1227 insert—

1227A Management expenses in relation to salaried members of
35limited liability partnerships

(1) This section applies in relation to a company if—

(a) as a member of a limited liability partnership, the
company is a company with investment business,

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(b) section 1273A(2) (limited liability partnerships:
salaried members) applies in the case of a member of
the partnership (“M”), and

(c) expenses of management of the company’s
5investment business are paid in respect of M’s
employment under section 1273A(2) but are not
referable to any accounting period under sections
1225 to 1227.

(2) The expenses are to be treated as referable to the accounting
10period in which they are paid.

Supplementary provision: arrangements made by intermediaries

5 In Chapter 8 of Part 2 of ITEPA 2003 (application of provisions to workers
under arrangements made by intermediaries) in section 54 (deemed
employment payment) after subsection (1) insert—

(1A) 15For the purposes of step 1 of subsection (1), any payment or benefit
which is employment income of the worker by virtue of section
863G(4) of ITTOIA 2005 (salaried members of limited liability
partnerships: anti-avoidance) is to be ignored.

Commencement

6 (1) 20Subject to what follows, the amendments made by this Part are treated as
having come into force on 6 April 2014.

(2) Section 863G(4A) of ITTOIA 2005 (as inserted by paragraph 1) comes into
force on the day after the day on which this Act is passed.

Part 2 25Partnerships with mixed membership

Main provision

7 (1) Part 9 of ITTOIA 2005 (partnerships) is amended as follows.

(2) In section 850 (allocation of firm’s profits and losses between partners) in
subsection (1) for “and 850B” substitute “to 850D”.

(3) 30After section 850B insert—

850C Excess profit allocation to non-individual partners

(1) Subsections (4) and (5) apply if—

(a) for a period of account (“the relevant period of account”)—

(i) the calculation under section 849 in relation to an
35individual partner (“A”) (see subsection (6)) produces
a profit for the firm, and

(ii) A’s share of that profit determined under section 850
or 850A (“A’s profit share”) is a profit or is neither a
profit nor a loss,

(b) 40a non-individual partner (“B”) (see subsection (6)) has a share
of the profit for the firm mentioned in paragraph (a)(i) (“B’s
profit share”) which is a profit (see subsection (7)), and

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(c) condition X or Y is met.

(2) Condition X is that it is reasonable to suppose that—

(a) amounts representing A’s deferred profit (see subsection (8))
are included in B’s profit share, and

(b) 5in consequence, both A’s profit share and the relevant tax
amount (see subsection (9)) are lower than they would
otherwise have been.

(3) Condition Y is that—

(a) B’s profit share exceeds the appropriate notional profit (see
10subsections (10) to (17)),

(b) A has the power to enjoy B’s profit share (“A’s power to
enjoy”) (see subsections (18) to (21)), and

(c) it is reasonable to suppose that—

(i) the whole or any part of B’s profit share is attributable
15to A’s power to enjoy, and

(ii) both A’s profit share and the relevant tax amount (see
subsection (9)) are lower than they would have been
in the absence of A’s power to enjoy.

(4) A’s profit share is increased by so much of the amount of B’s profit
20share as, it is reasonable to suppose, is attributable to—

(a) A’s deferred profit, or

(b) A’s power to enjoy,

as determined on a just and reasonable basis.

But any increase by virtue of paragraph (b) is not to exceed the
25amount of the excess mentioned in subsection (3)(a) after deducting
from that amount any increase by virtue of paragraph (a).

But any increase by virtue of paragraph (b) is not to exceed the
amount of the excess mentioned in subsection (3)(a) after deducting
from that amount any increase by virtue of paragraph (a).

(5) 30If B is chargeable to income tax, in applying sections 850 to 850B in
relation to B for the relevant period of account, such adjustments are
to be made as are just and reasonable to take account of the increase
in A’s profit share under subsection (4).

(This subsection does not apply for the purposes of subsection (7) or
35section 850D(7).)

(This subsection does not apply for the purposes of subsection (7) or
section 850D(7).)

(6) A partner in a firm is an “individual partner” if the partner is an
individual and “non-individual partner” is to be read accordingly;
40but “non-individual partner” does not include the firm itself where it
is treated as a partner under section 863I (allocation of profit to AIFM
firm).

(7) B’s profit share is to be determined by applying section 850 and, if
relevant, section 850A in relation to B for the relevant period of
45account (whether or not B is chargeable to income tax) on the
assumption that the calculation under section 849 in relation to B
produces the profit for the firm mentioned in subsection (1)(a)(i).

(8) “A’s deferred profit”—

(a) is any remuneration or other benefits or returns the provision
50of which to A has been deferred (whether pending the
meeting of any conditions (including conditions which may
never be met) or otherwise), and

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(b) includes A’s share (as determined on a just and reasonable
basis) of any remuneration or other benefits or returns the
provision of which to A and one or more other persons, taken
together, has been deferred (whether pending the meeting of
5any conditions (including conditions which may never be
met) or otherwise).

(9) “The relevant tax amount” is the total amount of tax which, apart
from this section, would be chargeable in respect of A and B’s income
as partners in the firm.

(10) 10“The appropriate notional profit” is the sum of the appropriate
notional return on capital and the appropriate notional consideration
for services.

(11) “The appropriate notional return on capital” is—

(a) the return which B would receive for the relevant period of
15account in respect of B’s contribution to the firm were the
return to be calculated on the basis mentioned in subsection
(12), less

(b) any return actually received for the relevant period of
account in respect of B’s contribution to the firm which is not
20included in B’s profit share.

(12) The return mentioned in subsection (11)(a) is to be calculated on the
basis that it is a return which is—

(a) by reference to the time value of an amount of money equal
to B’s contribution to the firm, and

(b) 25at a rate which (in all the circumstances) is a commercial rate
of interest.

(13) For the purposes of subsections (11) and (12) B’s contribution to the
firm is amount A determined under section 108 of ITA 2007
(meaning of “contribution to the LLP”).

(14) 30That section is to be applied—

(a) reading references to the individual as references to B and
references to the LLP as references to the firm, and

(b) with the omission of—

(i) subsections (5)(b) and (9), and

(ii) 35in subsection (6) the words from “but” to the end.

(15) “The appropriate notional consideration for services” is—

(a) the amount which B would receive in consideration for any
services provided to the firm by B during the relevant period
of account were the consideration to be calculated on the
40basis mentioned in subsection (16), less

(b) any amount actually received in consideration for any such
services which is not included in B’s profit share.

(16) The consideration mentioned in subsection (15)(a) is to be calculated
on the basis that B is not a partner in the firm and is acting at arm’s
45length from the firm.

(17) Any services, the provision of which involves any partner in the firm
in addition to B, are to be ignored for the purposes of subsection (15).

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(18) A has the power to enjoy B’s profit share if—

(a) A is connected with B by virtue of a provision of section 993
of ITA 2007 (meaning of “connected” persons) other than
subsection (4) of that section,

(b) 5A is a party to arrangements the main purpose, or one of the
main purposes, of which is to secure that an amount included
in B’s profit share—

(i) is charged to corporation tax rather than income tax,
or

(ii) 10is otherwise subject to the provisions of the
Corporation Tax Acts rather than the provisions of
the Income Tax Acts, or

(c) any of the enjoyment conditions (see subsection (20)) is met
in relation to B’s profit share or any part of B’s profit share.

(19) 15In subsection (18)(b) “arrangements” includes any agreement,
understanding, scheme, transaction or series of transactions
(whether or not legally enforceable).

(20) The enjoyment conditions are—

(a) B’s profit share, or the part, is in fact so dealt with by any
20person as to be calculated at some time to enure for the
benefit of A, whether in the form of income or not;

(b) the receipt or accrual of B’s profit share, or the part, by or to
B operates to increase the value to A of any assets held by, or
for the benefit of, A;

(c) 25A receives or is entitled to receive at any time any benefit
provided or to be provided (directly or indirectly) out of B’s
profit share or the part;

(d) A may become entitled to the beneficial enjoyment of B’s
profit share, or the part, if one or more powers are exercised
30or successively exercised by any person;

(e) A is able in any manner to control (directly or indirectly) the
application of B’s profit share or the part.

(21) In subsection (20) references to A include any person connected with
A apart from B.

(22) 35Subsection (23) applies if—

(a) the increase under subsection (4), or any part of it, is allocated
by A to the firm itself under section 863I (allocation of profit
to AIFM firm), and

(b) B makes a payment to the firm representing any income tax
40for which the firm is liable by virtue of section 863I in respect
of the amount of the increase allocated to it.

(23) For income tax purposes, the payment—

(a) is not to be income of any partner in the firm, and

(b) is not to be taken into account in calculating any profits or
45losses of B or otherwise deducted from any income of B.

850D Excess profit allocation: cases involving individuals who are not
partners

(1) Subsections (4) and (5) apply if—

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(a) at a time during a period of account (“the relevant period of
account”) in respect of a firm, an individual (“A”) personally
performs services for the firm,

(b) if A had been a partner in the firm throughout the relevant
5period of account, the calculation under section 849 in
relation to A for the relevant period of account would have
produced a profit for the firm,

(c) a non-individual partner (“B”) in the firm (see subsection (6))
has a share of that profit (“B’s profit share”) which is a profit
10(see subsection (7)),

(d) it is reasonable to suppose that A would have been a partner
in the firm at a time during the relevant period of account or
any earlier period of account but for the provision contained
in section 850C (see also subsections (8) to (10)), and

(e) 15condition X or Y is met.

(2) Condition X is that it is reasonable to suppose that amounts
representing A’s deferred profit (see subsection (11)) are included in
B’s profit share.

(3) Condition Y is that—

(a) 20B’s profit share exceeds the appropriate notional profit (see
subsection (12)),

(b) A has the power to enjoy B’s profit share (“A’s power to
enjoy”) (see subsection (13)), and

(c) it is reasonable to suppose that the whole or any part of B’s
25profit share is attributable to A’s power to enjoy.

(4) A is to be treated on the following basis—

(a) A is a partner in the firm throughout the relevant period of
account (but not for the purposes of section 863I (allocation of
profit to AIFM firm)),

(b) 30A’s share of the firm’s profit for the relevant period of
account is so much of the amount of B’s profit share as, it is
reasonable to suppose, is attributable to—

(i) A’s deferred profit, or

(ii) A’s power to enjoy,

35as determined on a just and reasonable basis, and

(c) A’s share of the firm’s profit is chargeable to income tax
under the applicable provisions of the Income Tax Acts for
the tax year in which the relevant period of account ends.

But A’s share of the firm’s profit by virtue of paragraph (b)(ii) is not
40to exceed the amount of the excess mentioned in subsection (3)(a)
after deducting from that amount A’s share of the firm’s profit (if
any) by virtue of paragraph (b)(i).

(5) If B is chargeable to income tax, in applying sections 850 to 850B in
relation to B for the relevant period of account, such adjustments are
45to be made as are just and reasonable to take account of A’s share of
the firm’s profit under subsection (4).

(This subsection does not apply for the purposes of subsection (7) or
section 850C(7).)

(This subsection does not apply for the purposes of subsection (7) or
50section 850C(7).)

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(6) “Non-individual partner” is to be read in accordance with section
850C(6).

(7) B’s profit share is to be determined by applying section 850 and, if
relevant, section 850A in relation to B for the relevant period of
5account (whether or not B is chargeable to income tax) on the
assumption that the calculation under section 849 in relation to B
produces the profit for the firm mentioned in subsection (1)(b).

(8) The requirement of subsection (1)(d) is to be assumed to be met if, at
a time during the relevant period of account, A is a member of a
10partnership which is associated with the firm.

(9) A partnership is “associated” with the firm if—

(a) it is a member of the firm, or

(b) it is a member of a partnership which is associated with the
firm (whether by virtue of paragraph (a) or this paragraph).

(10) 15In subsections (8) and (9) “partnership” includes a limited liability
partnership whether or not section 863(1) applies in relation to it.

(11) “A’s deferred profit” is to be read in accordance with section 850C(8).

(12) Section 850C(10) to (17) applies for the purpose of determining “the
appropriate notional profit”; and A is to be treated as a partner in the
20firm for the purposes of section 850C(17).

(13) Section 850C(18) to (21) applies for the purpose of determining if A
has the power to enjoy B’s profit share.

850E Payments by B out of the excess part of B’s profit share

(1) Subsection (2) applies in a case in which section 850C(4) or section
25850D(4) applies if—

(a) there is an agreement in place in relation to the excess part of
B’s profit share,

(b) as a result of the agreement, B makes a payment to another
person out of the excess part of B’s profit share, and

(c) 30the payment is not made under any arrangements the main
purpose, or one of the main purposes, of which is the
obtaining of a tax advantage for any person.

(2) For income tax purposes, the payment—

(a) is not to be income of the recipient,

(b) 35is not to be taken into account in calculating any profits or
losses of B or otherwise deducted from any income of B, and

(c) is not to be regarded as a distribution.

(3) In this section—

8 (1) Chapter 3 of Part 4 of ITA 2007 (trade loss relief: restrictions for certain
partners) is amended as follows.

(2) In section 102 (overview of Chapter) after subsection (2) insert—

(2A) This Chapter also provides for no relief to be given for a loss made
10by an individual in a trade carried on by the individual as a partner
in a firm in certain cases where some or all of the loss is allocated to
the individual rather than a person who is not an individual (see
section 116A).

(3) At the end insert—

15Partnerships with mixed membership etc
116A Excess loss allocation to partners who are individuals

(1) Subsection (2) applies if—

(a) in a tax year, an individual (“A”) makes a loss in a trade as a
partner in a firm, and

(b) 20A’s loss arises, wholly or partly—

(i) directly or indirectly in consequence of, or

(ii) otherwise in connection with,

relevant tax avoidance arrangements.

(2) No relevant loss relief may be given to A for A’s loss.

(3) 25In subsection (1)(b) “relevant tax avoidance arrangements” means
arrangements—

(a) to which A is party, and

(b) the main purpose, or one of the main purposes, of which is to
secure that losses of a trade are allocated, or otherwise arise,
30in whole or in part to A, rather than a person who is not an
individual, with a view to A obtaining relevant loss relief.

(4) In subsection (3)(b) references to A include references to A and other
individuals.

(5) For the purposes of subsection (3)(b) it does not matter if the person
35who is not an individual is not a partner in the firm or is unknown or
does not exist.

(6) In this section—

(7) This section applies to professions as it applies to trades.

9 (1) Chapter 4 of Part 4 of ITA 2007 (losses from property businesses) is amended
5as follows.

(2) In section 117 (overview of Chapter) in subsection (3) for “and 127B”
substitute “to 127C”.

(3) After section 127B insert—

127C Excess loss allocation to partners who are individuals

(1) 10Subsection (2) applies if—

(a) in a tax year, an individual (“A”) makes a loss in a UK
property business or an overseas property business as a
partner in a firm, and

(b) A’s loss arises, wholly or partly—

(i) 15directly or indirectly in consequence of, or

(ii) otherwise in connection with,

relevant tax avoidance arrangements.

(2) No relevant loss relief may be given to A for A’s loss.

(3) In subsection (1)(b) “relevant tax avoidance arrangements” means
20arrangements—

(a) to which A is party, and

(b) the main purpose, or one of the main purposes, of which is to
secure that losses of a UK property business or an overseas
property business are allocated, or otherwise arise, in whole
25or in part to A, rather than a person who is not an individual,
with a view to A obtaining relevant loss relief.

(4) In subsection (3)(b) references to A include references to A and other
individuals.

(5) For the purposes of subsection (3)(b) it does not matter if the person
30who is not an individual is not a partner in the firm or is unknown or
does not exist.

(6) In this section—

10 (1) Part 17 of CTA 2009 (partnerships) is amended as follows.

(2) 40In section 1262 (allocation of firm’s profits and losses between partners) in
subsection (1) for “and 1264” substitute “to 1264A”.

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