Beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Business Income Manual

Cash basis: receipts: capital receipts

S96A ITTOIA 2005, S105 (2A) ITTOIA 2005

Ordinarily, capital receipts are not taxable in calculating the profits of a trade (see BIM35001 onwards for further information on the capital / revenue divide). However, for a business using the cash basis, special rules mean that certain capital receipts are included in the calculation of trading income for the tax year. Amounts specifically included as cash basis receipts are:

Receipts from the disposal or deemed disposal of plant and machinery

If the whole or part of any expenditure paid to acquire, create or improve an asset has been brought into account in calculating the profits of a trade of a person on the cash basis, or would have been brought into account if a cash basis election had been in place at the time the expenditure was incurred (i.e. expenditure qualifying for plant and machinery allowances, except for expenditure on cars, see BIM70035), the following amounts should be brought into account as receipts of that trade:

  • Any proceeds arising from the disposal of the asset or any part of it
  • Any proceeds arising from the grant of any right in respect of, or any interest in, the asset
  • Any amount of damages, proceeds of insurance or other compensation received in respect of the asset

Any of the above receipts should be proportionately reduced if only part of the expenditure was or would have been brought into account in calculating the profits of the trade under the cash basis.

In addition, a person must bring into account a cash basis receipt equal to

  • The market value of the asset when the person ceases to use it for the purposes of the trade.
  • The relevant proportion of the market value of the asset if at any time there is a material increase in the person’s non-business use of the asset (see example below) - S96A(5) - (6) ITTOIA 2005


Hugo buys a van for use in his trade on 6 April 2015. The van costs £5,000, which he pays in cash, and the business use proportion is 90%.

Hugo makes up his books to 5 April 2016 - his cash basis expenses will include £4,500 (£5,000 x 90%) for the purchase of the van.

Hugo’s wife starts using the van for weekly supermarket trips in April 2016. Hugo works out that the business use proportion has decreased to 70%. At that time, the market value of the van is £4,000. The amount to be taken into account as a cash basis receipt for the year to 5 April 2017 is the ‘relevant proportion’ of the market value of the van at the time the business use decreased.

The relevant proportion is the difference between the private use before and after the increase, so 30% less 10%.

The cash basis receipt is £800 - 20% of £4000.

There is no corresponding cash basis expense if the level of business use subsequently increases.

Industrial development grants

Where a person carrying on a trade receives a grant under:

  • S7 or S8 of the Industrial Development Act 1982, or
  • Article 7, 9 or 30 of the Industrial Development (Northern Ireland) Order 1982,

the payment must be brought into account as a receipt in calculating the taxable profits of the trade.

For a person who has elected to use the cash basis, this is the case even if the grant is designated as made towards the cost of specified capital expenditure.