Mixed Member Partnership Tax Calculator

ITTOIA 2005 s850C (introduced 2014) targets arrangements where a partnership has both individual and corporate members, and income is diverted to the corporate member to benefit from the lower corporation tax rate rather than the higher personal income tax rate of the individual.

HMRC can reallocate income from a corporate member to a connected individual if: (1) the individual has 'deferred' income via the corporate, (2) the corporate income exceeds a 'notional' arm's-length return for its actual contribution, and (3) the individual has a 'relevant arrangement' to benefit from the corporate's profits.

The arm's-length return is what an independent third party would receive for the same contribution of capital, services, or other resources to the partnership. If the corporate receives more than this, the excess may be reallocated.

The rules apply to corporate members connected with an individual partner — typically a company owned or controlled by the individual partner, their spouse, or family members.

The reallocated income is treated as the individual's income and taxed at their marginal rate (up to 45%). This eliminates the benefit of routing income through the 25% corporation tax rate. Interest and penalties may apply for years before HMRC challenge.

Yes — LLPs and general partnerships alike. The rules were initially aimed at professional service LLPs where equity partners routed income to personal service companies.

Only if the corporate member genuinely contributes capital, skills, or services worth the income allocated to it at arm's length. Genuine commercial reasons — not tax avoidance — must drive the allocation.

Yes — alongside s850C, the 'salaried member' rules (see our separate calculator) and the 'profit/loss allocation' rules under s850 all work to ensure partnership income is taxed at appropriate rates.