Owner-Managed Businesses

Post-cessation receipts and expenses of a trade

Produced by Tolley
  • 19 Oct 2021 08:20

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Post-cessation receipts and expenses of a trade
  • Post-cessation receipts
  • Election to carry back post-cessation receipts
  • Class 4 national insurance position
  • Interaction with the trading allowance
  • Post-cessation expenses
  • Set against post-cessation receipts
  • Set against total income for the tax year
  • Set against capital gains for the tax year
  • Targeted anti-avoidance rule
  • More...

Post-cessation receipts and expenses of a trade

Statutory references to ITTOIA 2005 relate to unincorporated businesses, and CTA 2009 relate to companies unless otherwise stated.

Accounts are normally prepared on the accruals basis, so any post-cessation receipts and expenses are normally accounted for in the final period of trading. Such profits have been earned in that final period and the expenses incurred in that period and therefore they should have been recorded in that final period.

Occasionally, however, income may be omitted or may arise after the final period of trading. Similarly, expenses could be incurred in relation to the trade at a later date.

Where the trader has elected to calculate profits and losses on the simplified cash basis, generally, income is recognised when it is received by the business-owner and expenses are recognised when they are paid by the business-owner. This means that post-cessation receipts and expenses are common under this basis of assessment, since the income and expenses are not accrued in the final tax yearof the property business. See the Simplified cash basis expenditure guidance note.

This guidance note discusses post-cessation receipts and expenses from a trade. The rules for post-cessation receipts and expenses from a property business are broadly the same but the underlying legislative basis is different. These rules are discussed in the Post-cessation receipts and expenses of a property business guidance note.

See also Simon’s Taxes Division B2.8 for more details on post-cessation receipts and expenses.

Post-cessation receipts

If any trading income arises to a trader post-cessation which has not already been assessed, this is taxed in the tax yearin which the income is received (ie the arising basis). Relief is available for any post-cessation expenses not already relieved that are incurred in the same tax yearand would have been allowed had the trade, profession or vocation continued (see below).

Where the trading profits and losses were calculated under the accruals basis, the most common example of post-cessation receipts is the recovery

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