New Government guidance on the claiming of Capital Allowances by Partnerships is being highlighted by a Stoke-on-Trent-based expert.
HMRC issued updates to its Capital Allowances Manual last month with clarifications of the implications for various partnership structures.
Chris Roberts, Managing Director at Capital Allowance Review Services, is keen to emphasise the difference in allowances for Partnerships where all members are subject to Income Tax, and those where members pay Corporation Tax.
In the first scenario, for example, the Partnership profits for tax purposes are calculated according to Income Tax rules as if the Partnership was a “notional individual.”
Capital allowances are included as a deduction from income in arriving at those profits.
“Where all members are subject to Income Tax, Capital Allowances are claimed in the Partnership or Limited Liability Partnership (LLP) tax return as a deduction from profits, then fed through to the individuals’ tax returns by way of the distribution of the Partnership profits or losses,” said Chris.
“In regard to Partnerships where all members are corporate members, the Partnership is deemed to be a ‘notional company’ and its taxable profits are calculated as if the Partnership were a company, with Corporation Tax rules applying.”
HMRC has confirmed that the computation of profits can include claiming Capital Allowances that are only available to companies that pay Corporation Tax, including first year allowances such as super-deduction and full expensing, as long as the “notional company” meets the criteria for each allowance.
However, a Partnership of which a company is a member is not a “qualifying person” for Annual Investment Allowance (AIA).
“Where one or more partners are a corporate member,” Chris added, “HMRC has confirmed that the corporate member can claim first year allowances such as super-deduction or full expensing against its share of the partnership profits, but again it should be noted that AIA is not available to the corporate member.
“In the case of mixed partnerships, it may be necessary for the partnership to submit two tax returns, one in respect of the members who are not corporate members, and a second tax return for those members who are subject to Corporation Tax, regarded by HMRC as a ‘notional company’.”
