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HMRC internal manual

Business Income Manual

Partnerships - general notes: service companies

Partnerships may use a company, owned by the partners, to provide services to the partnership. In such cases, the main issue is likely to be whether fees paid by the partnership to the company are allowable deductions in calculating profits of the partnership trade.

Relevant factors to consider are:

  • what services the company provides to the partnership
  • the basis on which the company is remunerated for the services it provides
  • whether the company and partnership are connected persons.

In some cases the company providing services is also a partner in the partnership and receives a profit share. In this case the question is whether the company has a trade separate to the trade carried on in partnership. The company cannot claim expenses against the net profit allocated by the partnership. For further information on partners’ expenses see BIM82075.