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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Post-cessation receipts and expenses: person liable to tax

S245 Income Tax (Trading and Other Income) Act 2005

It is the person who receives the post-cessation receipt who is taxable

The legislation ensures that anyone who receives or is entitled to the post-cessation receipt is the person who is subject to Income Tax or Corporation Tax on the income. The person who receives and is taxed on this money does not have to be the person who carried on the original trade.

Therefore, essentially, the only test to consider when deciding whether these rules apply is whether the income is a post-cessation receipt (see BIM90030). If it is, then unless the territorial exclusion applies (see BIM90015), the income is taxable on the recipient.

If there is another person with a claim to the income you should consider the decision in Pertemps Recruitment Partnership Ltd v RCC

In this case, a recruitment agency received overpayments from customers which were usually either repaid or set against another liability of the customer. However, in a minority of cases the overpayments were neither offset against another liability nor returned to the customer. Every six months Pertemps reviewed its unreconciled balances in the sales ledger. Those that were more than six months old were transferred to a balance sheet account. At the end of each financial year, this balance sheet account was released to Pertemps’ profit and loss account as part of its year end procedures.

The Upper Tribunal held that the overpayments received by Pertemps arose because of its trading activities, and were therefore receipts arising or accruing from its trade. It did not matter that the payments were made in circumstances such that the payer had a restitutionary claim to repayment of that sum. Unless and until the payer made such a claim, the payments in question were the property of Pertemps and properly recorded in its profit and loss account as receipts of its trade.

To put this into the context of post-cessation receipts, this means that it is the person who receives the money who is taxable on it, even if others can also lay claim to the income. You will however have to consider the particular facts of the situation in deciding who is liable to tax on the post-cessation receipt.