Complex sharing arrangements can exist. For this reason the
partner’s interest in a business is determined on a just and
reasonable basis based, in particular, on the way in which a share
of profits or losses is determined for ICTA88/S114 (2) purposes and
the allocation of capital allowances.
If it is just and reasonable to do so, matters not taken into
account for these purposes may be considered here. If you think
that other matters should be taken into account please seek advice
from CT & VAT (Technical) before advancing detailed arguments.
Example: partnership sharing arrangements
A Ltd and B Ltd carry on a business of leasing plant or
machinery in partnership.
The partnership agreement entitles A Ltd to a 90% share of
the profits or losses before capital allowances and 10% of the
capital allowances. The balance of both profits and losses and
capital allowances goes to B Ltd.
In year 1 the profits (before capital allowances) for the
purposes of section 114 ICTA 1988 are 100, capital allowances are
calculated to be 500. The partnership computation is therefore:
| S114 Profit | 100 |
| CAs | (500) |
| Total profit or loss | (400) |
The shares are therefore:
A Ltd: 90 - 50 = 40
B Ltd: 10 - 450 = (440)
B Ltd would be limited to a loss of 400 – the
‘real’ loss for the accounting period. B Ltd therefore
has a share of 100% of the profit or loss of the partnership.
In year 2 the profits for the purposes of section 114 ICTA
1988 are still 100 but the capital allowances are now only 80.
The partnership computation is therefore:
| S114 Profit | 100 |
| CAs | (80) |
| Total profit or loss | 20 |
The shares are therefore:
A Ltd: 90 - 8 = 82
B Ltd: 10 - 72 = (62)
This time there is no loss and so A Ltd is taxed on the full
profit of 20 and B Ltd’s losses are restricted to nil. B Ltd
now has a 0% share in the profit or loss of the partnership.
B Ltd has fallen from a 100% share in the profit or loss to a
0% share in the profit or loss and there is a qualifying change in
the interest of B Ltd so that a charge will be triggered.
NOTE: This arrangement would also be subject to the
provisions in section ICTA88/785ZA so that any losses derived from
the business of leasing carried on in partnership would be
restricted.
