91 Receipts accruing after discontinuance of trade or profession

Summary

A charge to tax under Case IV of Schedule D is imposed on the post-cessation receipts of a trade or profession which could not have been taken into account while the business was being carried on. It also applies to debts wholly or partially written off during the course of the business but recovered only after the business ceased. The charge also arises on sums received after a business ceases where the accounts are drawn up on a “conventional basis” (that is, a basis other than a full earnings basis). Post-cessation expenses, unrelieved losses and unused capital allowances are allowable deductions in arriving at the charge to tax in respect of such receipts.

Details

Post-cessation receipts

(1) The section applies to sums arising from the carrying on of the business before the discontinuance which were not taken into account for tax purposes during the life of the business, whether or not the taxpayer was assessed on the earnings basis or on a conventional basis. Sums otherwise chargeable to tax (for example, royalties received by a person to whom the copyright may have been assigned) are excluded from the scope of the section.

Exclusions

(2) The following are not treated as post-cessation receipts for the purposes of the section —

• foreign income arising to a non-resident person or to any person acting on such a person’s behalf,
• a lump sum paid to personal representatives on the assignment of literary or other copyright,
• sums received for the transfer of trading stock belonging to a trade at the discontinuance of that trade or of work in progress of a profession at the time of discontinuance of the profession in a case where the profits/ gains of the profession had been computed on an earnings basis,
• sums which would have been exempt under section 195 (exemption of certain earnings of writers, composers and artists) if they had been received by an individual who would have been entitled to exemption under that section had they been received before the discontinuance of that individual’s profession.

Charging provision

(3) A charge to tax under Case IV of Schedule D applies to the post-cessation receipts of a trade or profession, the profits of which, before the discontinuance, had been chargeable to tax under Case I or II of Schedule D.

Deductions

(4) Post-cessation expenses (except any expenses arising from the discontinuance itself), unrelieved losses of the former business and unused capital allowances of the former business are allowable deductions in charging the post-cessation receipts.

Miscellaneous

(5)(a) The “earnings basis” of computing profits/gains is a basis where all credits and liabilities of a trade or profession accruing in any period are taken into account in computing the profits/gains for tax purposes.

(5)(b) The “conventional basis” of computing profits/gains is any basis of computation other than the earnings basis.

(5)(c) The section is also applied to the recovery of a bad debt written off during the life of a business.

Relevant Date: Finance Act 2019