Trading profits of a partnership

By Tolley
Trading profits of a partnership

The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Trading profits of a partnership
  • Introduction
  • Basic computational principles
  • Rent paid to a partner
  • Interest paid on partnership capital
  • Other payments to partners to reimburse them for other costs
  • Capital allowances
  • Payments of ‘salary’ made to partners


This note explains the general rules for the calculation of partnership profits before allocation to the partners. Once the partnership profits are calculated, partners are free to agree amongst themselves how the profits of the partnership are to be allocated between them. There is no requirement that the profit share reflects the contribution made by the partners. This may allow for planning opportunities. See Allocation of partnership income ― Planning opportunities.

The profit-sharing ratio should be set out in the partnership agreement or other documentation, such as minutes of partnership meetings.

For a discussion of how trading profits, untaxed income, taxed income and capital gains are assessed on partners, see the Taxation of partnership trading profits, Taxation of untaxed income of a partnership, Taxation of taxed income of a partnership and Basic rules for partnership gains guidance notes.

Basic computational principles

The calculation of partnership profits rests on four rules. These apply to all partnerships, irrespective of their type. Some may appear strange, even contradictory:

  • under UK tax law, all partnerships are transparent for tax purposes. This is the case even for limited liability partnerships (LLPs) or Scottish partnerships where the partnership itself is a legal person (see the Tax treatment of partnerships and partnership types guidance note) (ITTOIA 2005, ss 848, 863(1)(a);

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