PM217000 - When do the rules apply?

S850C (1)-(4) ITTOIA 2005

The excess profit allocation rules apply where:

• in a period of account, a partnership has a taxable profit;
• a share of the profit is allocated to a non-individual member;
• Condition X or Y is met.

Condition X is that it is reasonable to suppose that amounts representing the individual’s deferred profit are included in the non-individual’s profit share and in consequence both the individual’s profit share and the relevant tax amount (see PM22900) are lower than they would otherwise have been. For guidance on Condition X (see PM218000).

Condition Y is that:

• the non-individual’s profit share exceeds the appropriate notional profit (see PM220000);

• the individual has the power to enjoy the non-individual’s profit share (see PM224000);

• it is reasonable to suppose that the whole or any part of the non-individual’s profit share is attributable to the individual’s power to enjoy (see PM228000); and

• both the individual’s profit share and the relevant tax amount are lower than they would have been in the absence of A’s power to enjoy (see PM229000).

For further guidance on Condition Y see PM219000.

Sometimes a profit share may fall within both Condition X and Condition Y. In this situation, the rules of Condition X should be applied.