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HMRC internal manual

Business Income Manual

Computing the amount to assess: business changes: professional work in progress at cessation

S182-S185 Income (Trading and Other Income) Act 2005 (ITTOIA 2005)

Special provisions apply to the taxation treatment of work in progress of a profession or vocation, which are designed to prevent a loss of tax on a cessation. There are two alternative treatments, both of which ensure that the full realisable value of the work in progress is taxed.

The default position is that the work in progress is to be valued and taxed on cessation to include the practitioner’s profit element. This value is determined in one of two ways:

  1. if the work is transferred for money or other valuable consideration to another person who, in carrying on a trade, profession or vocation, is entitled to deduct the cost of the work in progress as an expense in computing taxable profits, the value is to be taken as the amount paid or other consideration given for the transfer;
  2. in any other case, the value is to be taken as the amount which would have been paid for a transfer at the time of cessation between independent parties dealing at arm’s length (S184 ITTOIA 2005).

Alternatively, the practitioner may elect to value the work in progress at cost for the purposes of calculating the profit of his final period of account. If the sums received for the transfer of the work exceed the actual cost, the excess is taxed as a post cessation receipt (S185 ITTOIA 2005). See BIM90000.

There are separate rules for practitioners who have elected to calculate the profits of their profession using the cash basis. See BIM70025.