Partner in multiple partnerships vs multiple LLPs

[Incredulum]

Consider several trading partnerships undertaking a similar activity - that of property development.

A person who is a partner in these several trading parterships (whether plain partnerships or LPs) has several separate trades the b/fwd losses of one which may not be offset against current year profits arising in another partnership.

s849 ITTOIA and s1259 CTA 09 both make it clear that the trade is viewed for IT/CT purposes as taking place within the partnership itself. "This section applies if a firm carries on a trade... then the profits of the trade are calculated..."


What if the partnerships are LLPs? s1273 CTA 09 and s863 ITTOIA state: "If a LLP carries on a trade with a view to profit all the activities of the LLP are treated as carried on in partnership by its members (and not by the limited liability partnership as such)." Clearly here it is the partner who is treated as having the trade, not the partnership.

It appears that the legislation treats LLPs very differently from other partnerships, and as the member which is a person is treated as carrying on the activity then the various LLPs constitute only one trade, giving rise to full relief of b/fwd losses of one partnership against current year profits of another partnership.

Any views?

[AvocadoK]

Incredulum,
I think what s863 is doing is recognising that although an LLP is in fact a separate legally entity, it is treated as if it were an ordinary partnership for tax purposes, where the trade of the firm is taxed on the partners rather than on the firm.
AK

[Incredulum]

Incredulum,
I think what s863 is doing is recognising that although an LLP is in fact a separate legally entity, it is treated as if it were an ordinary partnership for tax purposes, where the trade of the firm is taxed on the partners rather than on the firm.
AK

Obviously.

However, it seems to me that it does it in quite a different way to the way the ordinary partnership legislation works. Hence, apparently, a quite different (and indeed more favourable) result for tax purposes.

[AvocadoK]

Don't you think s854 does for ordinary partnerships what s863 does for LLPs?

I don't see where you get to the conclusion that all the member's activities are treated as a single trade. I agree that the member is treated as carrying on the activity, but where does it say that 2 or 3 activities (from 2 or 3 LLPs) would be merged into ?

Regards
AK

[Incredulum]

Because it depends on where the trade is taking place.

1. If a company trades, then the trade is treated by tax legislation as being carried on by the company.
2. If an individual trades, then the trade is treated by tax legislation as being carried on by the individual.
3. If an LLP carries on a trade the activities of the LLP are treated as carried on in partnership by its members. s1273 CTA 09 and s863 ITTOIA
4. If a partnership that is not an LLP carries on a trade then s849 ITTOIA and s1259 CTA 09 state that it is the firm itself that carries on the trade.


So if an individual or a company develops one block of flats, and commences developing another block of flats then it is the same trade.

If an individual or company develops a block of flats in partnership with others then:

i. If through an LLP then the trade is treated as being carried on by the individual or company

ii. if through an LP/p'p then the trade is treated as being carried on by the firm.

Therefore, if the individual or company develops another block of flats in another partnership with others (even if the partners are the same partners but the partnership is a different partnership - quite a common structure for multiple developments using partnerships which are limited).

i. If through an LLP then the second development is still treated as being carried on by the individual or company and therefore is aggregated with the first development for tax purposes

ii. If through an LP/p'p then the trade is treated as being carried on by this second partnership, and therefore is a distinct trade from the first development for tax purposes

[AvocadoK]

Sorry for slowness in replying!
I agree with your first three points, but not point 4.
s849 does not say that it is the firm that is carrying on the trade. It just tells you how to calculate the profits.
s848 says that the firm is not to be treated as an entity distinct from its partners. So the activities of the firm are treated as being carried out by its partners (which is in accordance with UK law, i.e. it is the partners who are treated as carrying on the trade, not the firm itself).
s863 achieves the same result by saying that the activities of an LLP (which of course is in law a separate entity) is treated as being those of the members, which puts them on the same footing as partners in a 'normal' partnership.
Regards
AK

[Incredulum]

Thank you.

I am not sure you can be right on point four - because if a person is a member of two similar trading partnerships then the person is regarded as having two separate trades. If what you write were correct then the person would be able to regard them as one trade.

s848 says that a firm is not to be regarded as an entity separate and distinct from the partners unless otherwise indicated. It is not as clear as you suggest.

s849 specifically states that it is a firm that carries on a trade.

And s850 tells you how to allocate the profits among the partners again specifically referring to the trade the partnership carries on "for any period of account a partner's share of a profit or loss of a trade carried on by a firm is determined for income tax purposes in accordance with the firm's profit-sharing arrangements.


s863 is achieving the same end result - i.e. making the partner taxable, but it does it through a completely different mechanism.

[AvocadoK]

I apologise again for slowness. (Partly due to my router getting fried by a lightning strike!)

If what you write were correct then the person would be able to regard them as one trade.

I don't think that follows. If the partnership (or LLP) operated a tea shop in Canterbury and the individual operated one in Cambridge, I do not think they would be regarded as the same trade, even though the individual is deemed to carry on both.

s848 says that a firm is not to be regarded as an entity separate and distinct from the partners unless otherwise indicated. It is not as clear as you suggest

Agreed, there is the caveat of 'unless indicated otherwise'. The legislation does indicate otherwise in some places, eg, regarding obligation by a company to deduct tax when paid to a partnership. But I don't see that it indicates otherwise here!

s849 specifically states that it is a firm that carries on a trade.

It does, but s847 sets the scene by explaining that 'firm' is really just shorthand ("In this Act persons carrying on a trade in partnership are referred to collectively as a “firm”.").

I agree that the partnership/LLP provisions get to round about the same result in different ways. The general partnership rules carry on the fiction of the firm having a separate identity for the purposes of computing profits and allocating them, but nevertheless recognise that in law it is actually the partners themselves carrying on the trade. LLPs have a separate legal identity of course, and my 'take' is that s863 treat the partners as if they were carrying on those activities themselves, exactly as non-LLP partners do.

Regards
AK

[Incredulum]

s849 specifically states that it is a firm that carries on a trade.

It does, but s847 sets the scene by explaining that 'firm' is really just shorthand ("In this Act persons carrying on a trade in partnership are referred to collectively as a “firm”.").

It all depends on how you read that. Either:

Persons individually carrying on a trade: when in partnership are referred to collectively as a firm.

Or.

Persons, when carrying on a trade in a partnership are referred to collectively as a firm. I don't think 847 helps us decide "where" the trade is being carried on.

If the partnership (or LLP) operated a tea shop in Canterbury and the individual operated one in Cambridge, I do not think they would be regarded as the same trade, even though the individual is deemed to carry on both.

What if the partner with tea shops in Canterbury and Cambridge were a corporate partner. Does the analysis change? Companies are only generally regarded as having multiple trades where there are losses to stream. An individual is a little different with HMRC happily issuing multiple trade pages for the IT returns.