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HMRC internal manual

Partnership Manual

HM Revenue & Customs
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Calculating the taxable profits: service companies

It is common practice for partnerships to set up service companies to provide services to the partnership, such as the provision of staff, office accommodation and clerical services. There is no objection to this, although the charge to the partnership for such services should be at no more than cost plus a modest uplift. If this is not the case, a transfer pricing adjustment may be required and advice should be sought from a local Transfer Pricing Specialist. You may also see cases where the service company provides services at cost with no uplift, but a transfer pricing adjustment is made to provide for an ‘arm’s length return’. You should consider whether the transfer pricing adjustment self assessed is reasonable with the help of a Transfer Pricing Specialist. Amendments to the compensating adjustments legislation, effective from 25 October 2013, will be introduced in Finance Bill 2014.

In some cases the company providing the services is also a partner in the partnership and receives a profit share. Guidance on this is contained in BIM82070