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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Post-cessation receipts and expenses: post-cessation trade relief: meaning of qualifying payment

S97 Income Tax Act 2007

Qualifying payments are tightly defined in order to limit relief against total income

This guidance relates to post-cessation expenses incurred by individuals, trustees, personal representatives and non-resident companies subject to Income Tax only.

As discussed in BIM90100, relief is available for post-cessation expenses against total income and/or chargeable gains if:

  • the person makes a ‘qualifying payment’ (see below), or
  • a ‘qualifying event’ occurs in relation to the debt owed to the person (see BIM90115).

The following expenses are ‘qualifying payments’ for the purposes of relieving post-cessation expenses against total income or chargeable gains if they are:

  • made for the purposes of remedying defective work done, goods supplied, or services provided in the course of a trade,
  • paid by way of damages in respect of defective work done, goods supplied or services provided (whether awarded by a Court or agreed during negotiations on a claim) in the course of the trade,
  • made in meeting the expenses of legal or other professional services in connection with a claim that the work done, goods supplied or services provided in the course of the trade was defective,
  • made in insuring against liabilities arising out of any claim about the defects above or in insuring against the liability to meet the expenses of legal or other professional services in connection with a claim about the defects above, or
  • made for the purpose of collecting, or seeking to collect, debts which were taken into account in computing the profits of the trade before discontinuance.

Where unpaid trade expenses which have been used to restrict the post-cessation trade relief are later paid, these are deemed to be ‘qualifying payments’ for these purposes (see BIM90105).

Post-cessation expenses which do not fall into the categories

If the person incurs post-cessation expenses which do not fall into the categories of ‘qualifying payments’ or ‘qualifying events’, the only method of relief (after deducting them from post-cessation receipts, see BIM90095) is to carry them forward to set against future post-cessation profits of the same trade (see BIM90135).