How are a partnership's trading profits or losses allocated among partners under section 850 of ITTOIA 2005?

Under section 850, each partner's share of the firm's trading profit or loss for a period of account is determined by the firm's profit-sharing arrangements during that period. These arrangements define each partner's entitlement to profits and obligation to bear losses, typically as set out in the partnership agreement.

What exceptions override the normal profit-sharing arrangements under section 850?

Sections 850A to 850D contain anti-avoidance rules that can override normal profit-sharing arrangements in certain circumstances, such as where partners claim losses when the firm is overall profitable or where profits are allocated to non-genuine partners. Section 12ABZB of the Taxes Management Act 1970 also applies as an overriding provision.

What does 'profit-sharing arrangements' mean for the purposes of section 850?

Profit-sharing arrangements means the rights of partners to share in the profits of the trade and the liabilities of partners to share in the losses of the trade. In practice, this usually reflects the terms of the partnership agreement, whether written or otherwise agreed among the partners.

What is the effect of the partnership return on each partner's profit share?

Under section 12ABZB of the Taxes Management Act 1970, once the partnership tax return is filed, the profit shares stated in it are treated as conclusive evidence of each partner's share for income tax purposes. These shares stand unless HMRC opens an enquiry into the return.

Income Tax (Trading and Other Income) Act 2005 section 850

Allocation of firm's profits or losses between partners

Section 850 establishes how a partnership's trading profits or losses are divided among the partners for income tax purposes.

Each partner's share of the firm's trading profit or loss for a period of account is determined by the firm's profit-sharing arrangements during that period.
This general rule is subject to overriding provisions in sections 850A to 850D and section 12ABZB of the Taxes Management Act 1970.
"Profit-sharing arrangements" means the partners' rights to share in profits and their liabilities to bear losses of the trade.
The partnership return, once filed, is treated as conclusive evidence of each partner's share under section 12ABZB of TMA 1970.

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