Annex 1: Minor changes in the law Change 8: Trading losses: restrictions: contribution to the firm in place of contribution to the trade: sections 56, 57, 58, 59, and 60 Contribution to the firm
For companies that are members of LLPs, the source legislation restricted loss relief against total profits by reference to the company’s contribution to the limited liability partnership (see section 118ZC(2) and (3) of ICTA).
By contrast, for companies that are limited partners (that are not also members of LLPs), the source legislation restricted loss relief against total profits by reference to the company’s contribution to the trade (see section 118(3) of ICTA).
But partnership law is more likely to look at capital contributed to the partnership (referred to in the relevant sections of the Act as the firm), rather than to capital contributed to a trade that the partnership carries on. For instance, a company might become a limited partner in a partnership formed under the Limited Partnership Act 1907 (LPA). Under section 4(2) of the LPA the company, at the time of entering into the partnership, contributes a sum or sums as capital (or property valued at a stated amount). The LPA does not prevent further amounts being contributed at a later date. But the intention of the LPA is that the contribution is to the firm, not the trade. The firm uses the capital contributed to fund its various activities – be that one trade or more than one trade and any investments etc that the firm might hold. And the company has limited liability for the debts and obligations of the firm, rather than just for the debts and obligations of any trade that the firm happens to carry on.
The Act reflects this by providing that total profit or group relief restrictions on trade losses operate in relation to a company’s “contribution to the firm” rather than “contribution to the trade”. This is, in principle, taxpayer-favourable as it may allow total profit relief or group relief to be obtained by reference to a larger amount than would otherwise be the case.