Commentary on Sections Overview Section 1259: Calculation of firm’s profits and losses
3187.This section contains the basic rules for calculating the profits of a firm. It is based on sections 114 and 115 of ICTA. The corresponding rule for income tax is in section 849 of ITTOIA.
3188.Section 6(4) of ICTA extends the meanings of “profits” and “trades” in sections 114 and 115 of ICTA. None of the partnership rules in this Act applies to chargeable gains. So the extension of “profits” to include chargeable gains is not needed. And for corporation tax purposes a company cannot:
	carry on a vocation (see Change 2 in Annex 1);
	be employed; or
	hold an office in partnership.
3189.So this Act does not rewrite either extension in section 6(4) of ICTA.
3190.If some of a firm’s partners are resident in the United Kingdom and some are not, the profits of the firm’s trade must be determined on different bases. For the resident partners, the determination includes profits arising outside the United Kingdom; for the non-UK resident partners, the determination is restricted to profits arising from a permanent establishment in the United Kingdom. (If there are other United Kingdom profits, a non-UK resident company is chargeable to income tax on those profits and the rules in ITTOIA apply.)
3191.Section 114 of ICTA is not explicit that the profits may have to be determined on more than one basis. This section brings together the rules for resident and non-UK resident partners. Subsection (2) introduces the idea that more than one determination may be needed.
3192.Subsection (3) sets out the normal basis for determining the profits, for a partner resident in the United Kingdom. The profits are determined as if the firm were a company resident in the United Kingdom.
3193.Subsection (4) sets out an alternative basis for determining the profits. If the company partner is not resident in the United Kingdom the profits of the firm are determined as if the firm were a company not resident in the United Kingdom. That determination is restricted to the profits arising from a permanent establishment in the United Kingdom. So there is no need to rewrite the requirement in section 115(4)(b) of ICTA that the partner’s share of the profits is treated as arising from such a permanent establishment.
3194.The profits of the firm are determined by reference to the extent to which they would be chargeable to corporation tax. So, in the case of a non-UK resident, the profits of which the partner has a share are those attributable to a permanent establishment in the United Kingdom.