Commentary on Sections Changes in partnership Section 1264: Loss-making period in which some partners have profits
3218.This section sets out what happens if the calculation of a partner’s share of the firm’s profit or loss under section 1262 produces a profit, even though the overall result for the firm is a loss. It is new. The corresponding rule for income tax was in section 850 of ITTOIA but is now in the new section 850B of ITTOIA.
3219.The section is the mirror-image of section 1263. It is most likely to apply when one or more partners are entitled to a salary or interest on the firm’s capital. A partner’s “profit” determined under section 1262 is, in effect, reallocated to the other partners, to reduce their shares of the loss. See Change 86 in Annex 1.
3220.Subsection (2) sets out the position for company A if it has a loss but any of the other partners has a profit determined under section 1262. The rule is that company A’s loss is reduced so that the total of the shares of the loss-making partners is no more than the amount of the firm’s losses.
3221.If some of the members of the firm are UK resident and some are non-UK resident (see section 1259), the measure of the firm’s loss may vary, depending on the residence of the partner “in relation to” which the firm’s loss is calculated. Similarly, if any of the partners is chargeable to income tax, that partner’s share is determined under ITTOIA and not under section 1262.
3222.So subsection (2) refers to “the comparable amount” for a partner. This amount may be on a basis different from that appropriate for that partner under section 1259 or the corresponding ITTOIA rule.