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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Business Income Manual: Computing the amount to assess: Mixed Membership Partnerships: Excess profit allocation: Reallocations: individuals

ITTOIA/S850C (4)

This section looks at how the amount of profits to be reallocated is calculated.


Increase in the individual’s profit share

The individual’s profit share is increased by:

  • the amount of their deferred profit;
  • the amount by which their profit is less than it would have been apart from the power to enjoy profits of the non-individual, as determined on a just and reasonable basis.


In deferred remuneration cases, the amount to be reallocated is simply the amount of the deferred profit, so far as is just and reasonable.

In cases other than deferred remuneration arrangements, the amount by which the individual’s profit share can be increased is limited to the amount by which the non-individual partner’s profit share exceeds its appropriate notional profit (see BIM82745), that is the excess profit.

In addition, the increase must be reduced by any increase that has been made in the case of that individual in respect of any reallocation of deferred profit.


Reallocation to a number of individuals

Often, the same non-individual partner will be allocated the profit shares properly attributable to a number of individual partners. If so, then the profit that is to be reallocated is split between the individual partners on a just and reasonable basis.

Where the profit is to be re-allocated to a number of partners, the approach will depend upon the facts of that case. The method adopted needs to put each individual in the same position that they would have been in absent the power to enjoy or the existence of the profit deferral arrangements.

Relevant considerations would be the extent of the individual members’ shareholding in the corporate member and any informal agreements between the partners. In the absence of any other detail, the starting position would be that the excess profit should be reallocated in the same proportions that those individuals have actually been allocated profit shares in that period.