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My understanding is that salary is not an allowable expense for tax for partnerships.
When allocating Trading Losses in a Partnership, if the partnership had 3 partners and shared profits / losses 1:1:1, if the partnership made a trading loss of £75,000 and each employee received a £5,000 salary, would the allocation of trading loss be £25,000 each? ie salary not allowable as an expense. Or would the three £5,000 salaries increase the trading loss to £90,000 and then this allocated to each partner? eg £30,000 loss each?
Any help would be much appreciated.
In computing the adjusted trading loss any salary payable to a partner would have been disallowed in computing that adjusted trading loss figure, but in the partnership allocation of that loss any “salary” would be credited to a partner which would then have the effect of increasing the amount of loss to split in the PSR – hence in your example above each partner would receive a £30,000 share of the loss but as each partner had firstly been credited with a salary of £5,000 the result would be that each partner has the use of a £25,000 loss
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