BIM72055 - Partnerships - general notes: Sharing profits / losses

Profits, losses or other income may be shared as the partners may mutually agree from time to time (Sections 19 and 24 Partnership Act 1890). The sharing ratio need not be in proportion to contributions of effort or capital. It is not necessary for the partners to share profits and losses in the same proportions, nor income from other sources in the same proportions as trading or professional income. A partner's share of the income on which they are assessable is computed according to their entitlement in the partnership’s accounting period.

The allocation of profits or losses for an accounting period cannot be varied retrospectively after the end of that accounting period - see Bucks v Bowers, (46TC275) (Merchant banker. An ex post facto reallocation of profits cannot operate to redistribute the right to relief).

Where, in a partnership including a corporate partner, it appears that consideration may have passed between partners for a share of the profit or loss, you should consider whether ICTA88/S116 and ICTA88/S834 (1) apply - see CTM36590. Briefly ICTA88/S116 is designed to prevent companies from using partnerships to transfer losses from one company to another. By doing this, companies could indirectly obtain relief for unrelieved ACT. This abuse was expected to follow from the stringent qualifications for entitlement to group and consortium relief required by ICTA88/S413.

The instructions in BIM75240 on the limitation of relief under ICTA88/S380 to a partner or partners by reference to the loss sustained by the firm as a whole apply also to relief to be allowed by carry-forward.