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HMRC internal manual

Corporate Finance Manual

Loan relationships: partnerships: overview


Partnerships can take many forms. Members of a partnership can include individuals, companies or trustees. A partnership can be constituted under English, Scottish or foreign law, and/or may be a limited partnership. See the guidance on partnerships in BIM72000 onwards.

In all cases, the members of the partnership, not the partnership itself, are taxable on the profits made by the partnership. Generally, for tax purposes, the profits of the partnership must be calculated first, before apportioning the results between the partners in accordance with the profit sharing arrangements in place for that accounting period.

Although partnerships are not ‘legal persons’ under English law (though they are in Scotland), the law recognises that the partnership - that is, the partners collectively - can lend and borrow money. For example, the partnership can sue and be sued over a debt. A partnership may therefore be the creditor or debtor under a loan relationship where there are company members.

Partnerships with company members

When a partnership has one or more company members, CTA09/PT17 provides that you calculate the profits of the partnership as if the partnership was in fact a company and so you apply the corporation tax rules, see CTM36505. But if some members of the partnership are not companies, you also have to calculate the profits in accordance with the income tax rules.

The problem with this approach for loan relationships is that

  • income from debt is treated in different ways for individuals and companies and
  • different types of company may get different treatment under the loan relationships rules.

For this reason there are special rules in CTA09/PT5/CH9 to ensure that

  • companies bring in the appropriate credits and debits relating to loan relationships (CFM36020 to CFM36040)
  • the connection rules apply to companies that are members of partnerships (CFM36050 to CFM36070).

Company partners and connected debtor companies

Company partners may be ‘connected’ with a company that is a borrower. CFM36080 to CFM36100) summaries the consequences under the loan relationships rules.