Corporation Tax Act 2010 section 417

Partner company's income and other companies' matching expense

Section 417 deals with the tax consequences when a company carrying on a plant or machinery leasing business in partnership experiences a qualifying reduction in its interest in that business, requiring the departing partner to recognise income and the remaining partners to recognise a matching expense.

• When a partner company's interest in a partnership leasing business undergoes a qualifying change (i.e. a reduction), the partner company is treated as receiving an amount of income on that day, while the other companies in the partnership are treated as incurring an expense
• The deemed income is recognised as a receipt of the partner company's notional business and is brought into account for the accounting period covering the day of the change — there is no forced end to the accounting period
• The matching expense for the other companies is normally treated as an expense of their own notional business and is deductible in calculating profits for the relevant accounting period
• If, however, one of the other companies ends up as the sole person carrying on the business by the end of that day, the expense is instead treated as incurred in the business it now carries on alone, and is deductible in calculating that business's profits