Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Business Income Manual

From
HM Revenue & Customs
Updated
, see all updates

Business Income Manual: Computing the amount to assess: Mixed Membership Partnerships: Excess profit allocation: The appropriate notional consideration for services

ITTOIA/S850C (15)-(17)

This is the arm’s length value of any services provided by that member for the period, less any other amount received for those services (for example, a service fee) that is not part of the profit share.

In most cases, this notional consideration should be no more than the cost to the company in providing the services plus a modest mark-up.

If any services provided involve other members of the partnership (including in particular all the individual members), then the value of these services is not included in arriving at the notional return, for further guidance on this see BIM82765.

Example 1

This example shows that it is important to look at what service is actually being provided.

*The members of Farm LLP are two individuals, A and B, and their company C Ltd. In addition to being a member of Farm LLP, C Ltd provides contractor services to farms in the area. C Ltd also leases equipment to farms, including Farm LLP. *

Farm LLP is a mixed membership partnership. C Ltd is providing services to Farm LLP, so the question is what is the appropriate notional consideration for services?

C Ltd is being paid for contractor services on an arm’s length basis directly by its customers. This is separate from any services that C Ltd provides to Farm LLP so is not taken into account under the mixed membership rules.

In addition, C Ltd is providing the use of its equipment to Farm LLP. The arm’s length value of this, using the amounts it charges to other farms as a comparable, is £10,000.

C Ltd has an appropriate notional consideration for those services of £10,000. This is because it is providing equipment to Farm LLP.

*Example 2 *

This example looks at where a corporate member provides the partnership with the use of an asset, such as land.

*The members of Agri LLP are two individuals, H and J, and their company HJ Ltd. HJ Ltd owns some of the land farmed by Agri LLP, no rent is being charged by HJ Ltd. *

Agri LLP is a mixed membership partnership. HJ Ltd is providing services to Agri LLP, so the question is what is the appropriate notional consideration for services?
 

The appropriate notional consideration for services is the arm’s length rent for the land.

Example 3

This example looks at where the partnership is paying rent but the terms have not been reviewed.

The facts are the same as in example 6, except that a rent is being paid. This was set a number of years ago, and has not been reviewed.

The appropriate notional consideration for services is the arm’s length rent for the land less the rent paid.