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

HMRC internal manual

Business Income Manual

Post-cessation receipts and expenses: meaning of post-cessation expenses

S254 Income Tax (Trading and Other Income) Act 2005, S196 Corporation Tax Act 2009

Post-cessation expenses are usually something that would have been deducted in arriving at the profits of the trade had it not ceased

In the same way that post-cessation receipts are taxable income of the person who receives them, relief may be available for post-cessation expenses.

What is a post-cessation expense?

In order to be an allowable post-cessation expense:

  1. the trade must have ceased, and
  2. the expense would have been deductible in calculating the trading profits.

This means that the expense still has to meet the wholly and exclusively test and be revenue, not capital, expenditure. For guidance on the wholly and exclusively rules, see BIM37000. For guidance on the capital and revenue divide, see BIM35000.

An item of expenditure can be apportioned between admissible and inadmissible elements for the purposes of the wholly and exclusively test if it is possible to identify and quantify a proportion incurred exclusively for business purposes. If it is not possible to do so then the whole of the expenditure is inadmissible (see BIM37600 and BIM37900).

Further conditions

The expense is not allowable if it relates to the cessation itself. This is the case whether the expense arises directly or indirectly from the cessation of the trade.

An expense can only be relieved once and so if relief can be obtained for the same expense under any other provision in the Taxes Acts, the expense is not a post-cessation expense (see BIM90085).


The following expenses are likely to be post-cessation expenses:

  • remedying defective work done, goods supplied, or services rendered while the business was continuing or as damages in respect of such defective work, goods or services whether awarded by a Court or agreed during negotiations on a claim
  • paying legal or other professional expenses incurred in connection with the costs above
  • insuring against liabilities arising out of any such claim or against the incurring of such expenses
  • collecting, or seeking to collect, debts which were taken into account in computing the profits of the trade before discontinuance

As discussed in BIM90035, if a bad or doubtful debt is allowed as a deduction from trading income prior to cessation and is then recovered after cessation, the amount received is a post-cessation receipt.

The reverse is also true. Where the debt has been included in the trading profits but later, after the trade has ceased, all or part of the amount owed is found to be a bad or doubtful debt this is treated as a post-cessation expense (provided the conditions discussed above are met).

Cash basis

If, immediately before a person permanently ceases to carry on a trade, a cash basis election has effect in relation to the trade, that election is treated as still having effect, so that the provisions of the cash basis apply to the admissibility of the post-cessation expense (see BIM70030 onwards).

Simplified expenses: motor vehicles

If the post-cessation expense relates to a vehicle and immediately before the person permanently ceases to carry on the trade S94D ITTOIA 2005 (see BIM75005) applies in relation to that vehicle, it is assumed that that section still applies in relation to the vehicle.

Relief for post-cessation expenses

Relief is available in a number of different ways depending on the circumstances. For an overview, see BIM90090.