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HMRC internal manual

Business Income Manual

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Business Income Manual: Computing the amount to assess: Mixed Membership Partnerships: Excess profit allocation: Condition Y: Power to enjoy: Arrangements to secure corporation tax rather than income tax treatment

ITTOIA/S850C (18)

An individual has the power to enjoy the profit share of a non-individual member if the individual is a party to arrangements, one of the main purposes of which is to ensure that an amount is included in the non- individual’s profit share and subject to corporation tax instead of income tax. This may, for example, be the case because the corporate member is able to obtain relief under corporation tax rules for amounts that would not be deductible under income tax provisions. 

This rule applies even if there is no economic connection between the individual and the corporate member.

The legislation applies both where the intention is to ensure that the sum is taxed at corporation tax rates, rather than income tax rates, and also where the aim is to access a relief that is only available for corporation tax payers.

As the individual has the power to enjoy the profit share, Condition Y is satisfied, see BIM82740.