B2.805 Further analysis of certain items treated as post-cessation receipts
Debts paid after cessation of the trade
Where a deduction for a bad or doubtful debt has been claimed whilst trading and subsequently the trade is permanently discontinued, any amount of the debt recovered after the discontinuance is treated as a post-cessation receipt1. It is taxable in the hands of the recipient, to the extent of the amount that was originally deducted from trading profits.
This provision can apply in the following circumstances:
• to a person liable to income tax who recovers a debt, relief for which has been previously given to a company liable to corporation tax2
• to a person liable to corporation tax who recovers a debt, relief for which has been previously given to a person liable to income tax3
For income tax purposes, in some instances relief for the bad debt may not have arisen until after the trade had been permanently discontinued4. Any amount subsequently recovered in respect of that debt is also treated as a post-cessation receipt5.
Debts released after cessation of the trade
Where a person has been allowed a deduction for an expense giving rise to a debt owed by the person who carried on the trade, and following cessation of the trade, the person is released from all or part of the debt to which the expense related6, the amount released is treated as a post-cessation receipt, provided the release is not part of a statutory insolvency arrangement7. This provision can
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