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

Loss-making period in which some partners have profits

Section 850B deals with how a partner's share of a partnership trade loss is determined when, in a loss-making period, some partners end up with profits rather than losses under the normal allocation rules.

• Where the firm overall makes a loss but a particular partner's allocated share is a profit, that partner's share of the trade loss is treated as neither a profit nor a loss — effectively a nil result
• Where both the firm's result and the partner's allocated share are losses, but at least one other partner has a profit, the partner's allowable loss is restricted using the formula: FL × PL ÷ (PL + TCL)
• The "comparable amount" for each other partner is found by taking the firm's loss and splitting it among the other partners according to the profit-sharing arrangements, to identify which of them have losses and which have profits
• The term "partner" for these purposes includes any partner in the firm, whether or not that partner is chargeable to income tax — so corporate partners are also taken into account

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