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This note explains the rules for allocating tax adjusted profits or losses, other than capital gains, between partners in a partnership. The note also summarises some common profit sharing arrangements, provides details of what happens when one partner is allocated a profit and another a loss and finally sets out the anti-avoidance rules for mixed partnership profit allocations.

For the allocation of capital gains, see the Capital gains of a partnership guidance note. For the position when there is a change of partners, see the Admitting a new partner and Retirement of a partner guidance notes.

Although taxable profits are calculated for the partnership as a whole, the tax liability is borne by the individual partners. Therefore once partnership profits are calculated (see the Trading profits of a partnership guidance note), the tax-adjusted profits are then allocated to each partner in the partnership.

Partners are free to agree amongst themselves how the profits of the partnership are to be allocated between them. The legislation