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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Business Income Manual: Computing the amount to assess: Mixed Membership Partnerships: Excess profit allocation: When do the rules apply?

ITTOIA/S850C (1)-(4))

The excess profit allocation rules apply where:
 

  • in a period of account, a partnership has a taxable profit;
  • a share of the profit is allocated to a non-individual member;
  • Condition X or Y is met.

 

Condition X is that it is reasonable to suppose that amounts representing the individual’s deferred profit are included in the non-individual’s profit share and in consequence both the individual’s profit share and the relevant tax amount (see BIM82800) are lower than they would otherwise have been. For guidance on Condition X see BIM82730.

Condition Y is that:

  • the non-individual’s profit share exceeds the appropriate notional profit (see BIM82745);
  • the individual has the power to enjoy the non-individual’s profit share (see BIM82770);
  • it is reasonable to suppose that the whole or any part of the non-individual’s profit share is attributable to the individual’s power to enjoy (see BIM82790); and
  • both the individual’s profit share and the relevant tax amount are lower than they would have been in the absence of A’s power to enjoy (see BIM82800).

 

Sometimes a profit share may fall within both Condition X and Condition Y. In this situation, the rules of Condition X should be applied.