Corporation Tax Bill

House of Commons

Session 2008 - 09
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 17 — Partnerships
583

(b)
immediately after the event the trade is carried on in partnership by
persons who include a company.
(4)
An event falls within this subsection if—
(a)
immediately before the event the trade is carried on in partnership by
persons who include a company, and
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(b)
immediately after the event no company carries on the trade in
partnership.
(5)
A change in the persons carrying on the trade falls within this subsection if—
(a)
both immediately before and immediately after the change the trade is
carried on in partnership by persons who include a company, but
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(b)
no company which carried on the trade immediately before the change
continues to carry it on after the change.
(6)
For the purpose of determining, in relation to a partner, the accounting periods
by reference to which profits are to be calculated under section 1259, the
residence of the deemed company at any time is to be taken to be the same as
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the partner’s.
1262
Allocation of firm’s profits or losses between partners
(1)
For any accounting period of a firm a partner’s share of a profit or loss of a
trade carried on by the firm is determined for corporation tax purposes in
accordance with the firm’s profit-sharing arrangements during that period.
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This is subject to sections 1263 and 1264.
(2)
If a firm pays charges on income, a partner’s share of the charges is determined
for corporation tax purposes in accordance with the firm’s profit-sharing
arrangements during the accounting period of the firm in which the charges
are paid.
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(3)
For the purposes of subsection (2) a charge on income which arises from a
disposal such as is mentioned in section 587B(1) of ICTA (gifts of shares,
securities and real property to charities etc) is taken to be paid when the
disposal is made.
(4)
In this section and sections 1263 and 1264 “profit-sharing arrangements”
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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.
1263
Profit-making period in which some partners have losses
(1)
For any accounting period of a firm, if—
(a)
the calculation under section 1259 in relation to a partner (“company
35
A”) produces a profit, and
(b)
company A’s share determined under section 1262 is a loss,

company A’s share of the profit of the trade is neither a profit nor a loss.
(2)
For any accounting period of a firm, if—
(a)
the calculation under section 1259 in relation to company A produces a
40
profit,
(b)
company A’s share determined under section 1262 is a profit, and
(c)
the comparable amount for at least one other partner is a loss,

Corporation Tax Bill
Part 17 — Partnerships
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company A’s share of the profit of the trade is the amount produced by the
formula in subsection (3).
(3)
The formula is—

where—
FP is the amount of the firm’s profit calculated under section 1259 in
5
relation to company A,
PP is the amount determined under section 1262 to be company A’s profit,
and
TCP is the total of the comparable amounts attributed to other partners
under Step 3 in subsection (4) that are profits.
10
(4)
The comparable amount for each partner other than company A is determined
as follows.
Step 1

Take the firm’s profit calculated under section 1259 in relation to company A.
Step 2
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Determine in accordance with the firm’s profit-sharing arrangements during
the relevant accounting period the shares of that profit that are attributable to
each of the other partners.
Step 3

Each such share is the comparable amount for the partner to whom it is
20
attributed.
(5)
In subsections (2) to (4) “partner” means any partner in the firm, whether or not
within the charge to corporation tax.
1264
Loss-making period in which some partners have profits
(1)
For any accounting period of a firm, if—
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(a)
the calculation under section 1259 in relation to a partner (“company
A”) produces a loss, and
(b)
company A’s share determined under section 1262 is a profit,

company A’s share of the loss of the trade is neither a profit nor a loss.
(2)
For any accounting period of a firm, if—
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(a)
the calculation under section 1259 in relation to company A produces a
loss,
(b)
company A’s share determined under section 1262 is a loss, and
(c)
the comparable amount for at least one other partner is a profit,

company A’s share of the loss of the trade is the amount produced by the
35
formula in subsection (3).

Corporation Tax Bill
Part 17 — Partnerships
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(3)
The formula is—

where—
FL is the amount of the firm’s loss calculated under section 1259 in
relation to company A,
PL is the amount determined under section 1262 to be company A’s loss,
5
and
TCL is the total of the comparable amounts attributed to other partners
under Step 3 in subsection (4) that are losses.
(4)
The comparable amount for each partner other than company A is determined
as follows.
10
Step 1

Take the firm’s loss calculated under section 1259 in relation to company A.
Step 2

Determine in accordance with the firm’s profit-sharing arrangements during
the relevant accounting period the shares of that loss that are attributable to
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each of the other partners.
Step 3

Each such share is the comparable amount for the partner to whom it is
attributed.
(5)
In subsections (2) to (4) “partner” means any partner in the firm, whether or not
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within the charge to corporation tax.
1265
Apportionment of profit share between partner’s accounting periods
(1)
This section applies if—
(a)
a share of a profit or loss calculated for an accounting period of a firm
is allocated to a company under any of sections 1262 to 1264, and
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(b)
the accounting period of the firm does not coincide with an accounting
period of the company.
(2)
The share of the profit or loss must be apportioned between the accounting
periods of the company in which the accounting period of the firm falls.
Firms with a foreign element
30
1266
Resident partners and double taxation agreements
(1)
This section applies if—
(a)
a UK resident company (“the partner”) is a member of a firm which—
(i)
resides outside the United Kingdom, or
(ii)
carries on a trade the control and management of which is
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outside the United Kingdom, and

Corporation Tax Bill
Part 17 — Partnerships
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(b)
by virtue of any arrangements having effect under section 788 of ICTA
(“the arrangements”) any of the income of the firm is relieved from
corporation tax in the United Kingdom.
(2)
The partner is liable to corporation tax on the partner’s share of the income of
the firm despite the arrangements.
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(3)
If the partner’s share of the income of the firm consists of or includes a share in
a qualifying distribution made by a UK resident company, the partner (and not
the firm) is, despite the arrangements, entitled to the share of the tax credit
which corresponds to the partner’s share of the distribution.
(4)
For the purposes of this section the members of a firm include any company
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which is entitled to a share of the income of the firm.
Adjustment on change of basis
1267
Various rules for trades and property businesses
(1)
In the case of a trade or property business carried on by a firm, the amount of
any adjustment under—
15
(a)
Chapter 14 of Part 3 (adjustment on change of basis: trades), or
(b)
section 262 (giving effect to positive and negative adjustments:
property businesses),

is calculated as if the firm were a UK resident company.
(2)
Each partner’s share of any amount brought into account as a receipt under
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Chapter 14 of Part 3, or section 262, is determined according to the firm’s
profit-sharing arrangements for the 12 months ending immediately before the
date on which the new basis was adopted.
(3)
A change in the persons carrying on a trade from one period of account to the
next does not prevent Chapter 14 of Part 3 applying in relation to the trade so
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long as a company carrying on the trade in partnership immediately before the
change continues to carry it on in partnership after the change.
(4)
A change in the persons carrying on a property business from one period of
account to the next does not prevent section 262 applying (by virtue of section
261) in relation to the property business so long as a company carrying on the
30
property business in partnership immediately before the change continues to
carry it on in partnership after the change.
(5)
Sections 1259 to 1264 do not apply so far as subsection (1) or (2) applies.
1268
Election for spreading under Chapter 14 of Part 3
(1)
A change in the persons carrying on a trade does not constitute the permanent
35
cessation of the trade for the purposes of section 186 (mark to market: election
for spreading) so long as a company carrying on the trade in partnership
immediately before the change continues to carry it on in partnership after the
change.
(2)
Any election under section 186 must be made jointly by all the persons who
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have been members of the firm in the period of 12 months ending immediately
before the date on which the new basis was adopted.