HMRC has clarified the rules relating to capital allowances claims in mixed partnerships, confirming that all partners subject to corporation tax are eligible for enhanced capital allowances.
Capital Allowances Rules For Partnerships
Individual partner taxation can be complicated, particularly in ‘mixed partnerships’ where a limited company is a member. In partnerships, each member receives the effect of the partnership’s capital allowances claim through their allocation of profits. On the 16th of January 2024, HMRC clarified the position of corporate members when claiming allowances. Below, we outline the details of this updated guidance.
- Where All Members Are Subject To Income Tax
- Where All Members Are Corporate Members
- Mixed Partnerships
Where All Members Are Subject To Income Tax
In a partnership where all the members are subject to income tax, the process is simple: capital allowances are deducted from income, and profit is distributed to members in accordance with the profit-sharing agreement.
Where All Members Are Corporate Members
Corporate taxpayers are entitled to certain accelerated capital allowances, such as full expensing and super-deduction, that are not available to individuals subject to income tax. When all members of the partnership are corporate members, the partnership is deemed to be a notional company. That means partnership profits are calculated as if the partnership were a company, with corporation tax rules applying.
HMRC has confirmed that the tax computation can include claiming capital allowances, which are only available to companies that pay corporation tax. This includes first-year allowances like full expensing and super deduction but does not include the annual investment allowance (AIA).
Mixed Partnerships
Where a partnership has some corporate members and some members who pay income tax, the deduction of capital allowances is more complicated as profit is calculated for the partnership, but only the corporate members are entitled to enhanced capital allowances.
HMRC has updated its partnership manual to confirm that the corporate members of such partnerships should receive the same level of capital allowances as they would outside of the partnership. Guidance on how to achieve this has been added to the manual. It advises that such partnerships may need to submit more than one computation: one for members who are subject to income tax and one for corporate members.
Understand Your Position
For further support in knowing where you stand regarding capital allowance claims, get in touch with our experienced team of accountants at Digital Tax Matters. We’re well-versed in all areas of taxation and are expertly placed to help you understand even the most complicated matters.