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HMRC internal manual

Business Income Manual

Post-cessation receipts and expenses: post-cessation trade relief: reduction for unpaid trade expenses

S99 Income Tax (Trading and Other Income) Act 2005

How the reduction for unpaid trade expenses works

The principles illustrated by this example relate to post-cessation expenses incurred by individuals, trustees, personal representatives and non-resident companies subject to Income Tax only.


Under generally accepted accounting practice (GAAP), expenses are deductible from trading profits for tax purposes at the time the liability to pay them arises, which is not the same as the date these are actually paid.

Therefore, in considering post-cessation trade relief (see BIM90100), it is appropriate that an adjustment be made for any expenses claimed as a deduction in computing trading profits, but which were unpaid at the time that the trade ceased.

This means that when applying post-cessation trade relief, the amount eligible for relief must be reduced by the amount of the expenses that are still unpaid at the end of the tax year in question. However, note that the reduction should not include any amount taken into account as a reduction in a previous tax year. This prevents a double restriction for the same expenditure.


Note that if the person who carried on the trade was a partner in a partnership, the unpaid expenses in question are the former partner’s share of the unpaid expenses.

Subsequent payment of expenses

Any of the trade expenses paid subsequently are to be treated as a ‘qualifying payment’ (see BIM90110).


Caroline runs a hat shop. From 2008 onwards her business goes into sharp decline and she ceases trading on 12 December 2010. She makes up her accounts to the date she closed the shop, including all bills received up to that point. However, as she is unemployed after giving up the shop, she cannot afford to pay all the outstanding bills in relation to the shop. She clears most of them during 2011, but by 5 April 2012 she still owes the landlord £300 in back rent for the shop. She pays £260 on 30 September 2014, leaving £40 unpaid.

In January 2013 Caroline pays £200 in legal fees to try to recover a debt owed by one of the hat shop customers. She puts in a claim under Section 96 for those expenses, but the clawback for unpaid trade expenses applies so Caroline’s claim is restricted to nil. The amount of unpaid bills left that could potentially affect future claims is reduced to £100.

When Caroline pays the £260 rent in 2014/15 she is treated as making a qualifying payment equal to the amount previously clawed back, less the amount of rent still owed (£200 - £40 = £160).

Year   5.4.13 5.4.14 5.4.15 5.4.16
Business expenses actually still unpaid at year end   £300 £300 £40 £40
Rent paid       £260  
Post-cessation qualifying expenses   £200      
Clawback for unpaid trade expenses   (£200)      
Business expenses treated as unpaid at year end   £100 £100    
Qualifying expenses treated as incurred       £160  
Post-cessation trade relief       £160