Commentary on Sections Changes in partnership Section 1260: Section 1259: supplementary
3199.This section sets out the treatment of losses and distributions in the calculation of the firm’s profits under section 1259. It is based on section 114 of ICTA.
3200.The usual rule is that the profits of the firm are calculated as if the firm were a company. On that assumption it is possible that losses brought forward should be deducted before the (net) profits are allocated to the partners. Instead, subsection (1) makes clear that losses are not taken into account in the calculation of the firm’s profit or loss to be allocated to the partners.
3201.Capital allowances are given as a deduction in calculating profits. So there is no need for the rule in section 114(1)(b) and (2) that gives special treatment to capital allowances. The same applies to balancing charges, which are treated as business receipts. And the rule about charges (also in section 114(1)(b) of ICTA) is not needed because charges cannot be a deduction in calculating the profits of a trade.
3202.There is a closely related rule in section 116(5) of ICTA. It is that, for the purposes of that section, capital allowances and charges are taken into account. As there is no longer a partnership rule that allowances and charges are ignored, there is no need for section 116(5) of ICTA. So it is repealed by Schedule 1 to this Act.
3203.Schedule 1 to this Act introduces a new subsection (4) to section 849 of ITTOA to make clear similarly that losses brought forward are ignored in calculating the firm’s profits for income tax purposes.
3204.Subsection (2) is based on section 114(1)(a) of ICTA, which provides that “references to distributions shall not apply”. It is clear from the context that this rule applies to payments made by the firm. So there is no question of a payment of, say, interest being treated as a distribution by the firm under section 209 of ICTA and being disallowed in calculating the firm’s profit. See Schedule 1 and Change 85 in Annex 1.