PM163360 - Expenses paid by partners

This guidance looks at the question of when an expense met by a partner is an expense of the partnership.

To be allowable as a deduction for tax purposes, the expense has to be an expense incurred (typically, paid) by the partnership for the purpose of the trade or property business carried on by the partnership or LLP, and meet the normal tests for being allowable for tax purposes.

Ordinarily, a partnership expense will be paid directly from partnership funds. The starting point when a partner pays something on behalf of the partnership is they will normally then be reimbursed by the partnership from partnership funds. The partner cannot claim the expense against their share of the profits in their individual return.

A key point is that as an expense of the business carried on in partnership, the expense will normally be included in the accounts of the partnership (where the partnership prepares accounts) and deducted in arriving at the commercial profits of the partnership. However provided an expense incurred by the partner on behalf of the partnership otherwise meets the wholly and exclusively test (and any other relevant criteria), a deduction may be allowed through the partnership return; the expense met by the partner will be deemed to have been incurred by the partnership.

There may also be rules in the partnership/LLP agreement setting out how the partners will agree that an expense is a partnership expense.

For further guidance on the general rules of how to determine the profits of a trade, including the wholly and exclusively and capital/revenue tests, see the guidance at BIM30000 onwards.

See the following pages for some particular examples.