Commentary on Sections Overview Section 852: Carrying on by partner of notional trade
3172.This section gives the rules for determining when a partner’s notional trade starts and ceases. It is based on sections 110, 111 and 112 of ICTA.
3173.Subsection (1) introduces the “notional trade” carried on by each partner. This phrase is used instead of the “deemed trade or profession” in section 111(4) of ICTA. The basis period rules in Chapter 15 of Part 2 of this Act apply to the notional trade carried on by each partner.
3174.Subsection (2) deals with a partner joining the firm. The general rule is that the notional trade starts when the partner joins the firm. The subsection makes it clear that the notional trade may start when the firm starts to trade. This is merely implicit in section 111 of ICTA.
3175.Subsection (3) is an exception to the general rule. If a firm is formed by a sole trader taking another person into partnership to carry on the same trade, the original trader is treated as starting to carry on a notional trade at the start of the actual trade. This provides continuity of treatment for the original trader.
3176.Subsection (4) deals with a partner leaving the firm. The general rule is that the partner ceases to carry on the notional trade when the partner leaves the firm. The subsection makes it clear that the notional trade may end when the firm ceases to trade. This is merely implicit in section 111 of ICTA.
3177.Subsection (5) is an exception to the general rule. If a firm is dissolved and its trade is continued by a sole trader, the continuing partner’s notional trade is treated as ceasing only when the actual trade ceases. This provides continuity of treatment for the continuing trader.
3178.Subsection (6) is the equivalent for partners of the general rule for individuals in section 17 of this Act.
3179.Section 112(1B) of ICTA operates by treating a partner who changes tax residence as ceasing to be a partner. That triggers a cessation of the deemed trade or profession in accordance with section 111(4)(e) of ICTA. This subsection says directly that a continuing partner who becomes, or ceases to be, resident in the United Kingdom is treated as ceasing to carry on one notional trade and starting another.
3180.Subsection (7) preserves the partner’s right to carry forward trading losses even if the notional trade is treated as ceasing by subsection (6).