BIM72060 - Partnerships - general notes: Whether profits earned or unearned

Every partner is the agent of his fellow-partners for the purpose of the partnership business (Section 5, Partnership Act 1890) so a partner may “carry on business” through their fellow-partners as their agent without playing any active part in the business themselves. Where they do act personally in the business, even to a very limited extent (for example, taking part in major decisions concerning the business) it is likely that their share of profit will be “earned income” as defined by ICTA88/S833 (4)(c). Where they act entirely by way of an agent, so that they do not act personally, their share will normally be unearned income, though it remains trading income. This will always be the case with limited partners - see BIM72101.

As regards Class 4 NIC see IM6025. As regards loss relief, see RE2072.