Corporation Tax Act 2009 section 140

Special rules for partnerships

Section 140 sets out two additional rules that apply when a partnership (firm) is treated as making a deemed employment payment under the intermediaries legislation (IR35) and claims a deduction for that payment in calculating its trading profits.

• The deduction for a deemed employment payment cannot exceed the amount that reduces the firm's profits for the period of account to nil — it cannot be used to create or increase a trading loss.
• The firm's allowable expenses connected with the relevant engagements are capped at 5% of the chain payment income (Step 1 of the deemed employment payment calculation) plus the amounts deductible at Step 3 of that calculation (such as capital allowances and pension contributions).
• These rules ensure that a partnership acting as an intermediary can only deduct expenses broadly equivalent to those an employee would have incurred, plus a small margin for the firm's own running costs.
• The terms "deemed employment payment" and "relevant engagements" take their meaning from the intermediaries legislation in Chapter 8 of Part 2 of ITEPA 2003.