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HMRC internal manual

Business Income Manual

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Post-cessation receipts and expenses: post-cessation trade relief: meaning of qualifying event

S98 Income Tax Act 2007

Qualifying events 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 BIM90110), or
  • a ‘qualifying event’ occurs in relation to the debt owed to the person (see below).

A ‘qualifying event’ occurs in relation to a debt owed to the person if:

  • an unpaid debt was included in the calculation of trading profits (prior to cessation),
  • the person is entitled to receive the payment of the debt, and either:

    • the debt proves to be bad,
    • the debt is released (in whole or in part) as part of a statutory insolvency arrangement.

This is, essentially, the reverse of the provision discussed in BIM90040, which considered the position of the debtor. The definition above provides relief for the creditor who has ceased trading and now has to write off a debt included as trading profits as being bad. As he was taxed on the money which he was owed which will now not be collected, this is treated as a post-cessation expense.

Appropriate amount of the debt

The amount of the debt available for relief as a result of a qualifying event is either:

  • the amount of the debt which has been released or proved to be a bad debt, or
  • if the person was only entitled to receive part of the debt, the corresponding part of the debt released or proved to be a bad debt.

The expense is allowed in the tax year in which the debt is released or the debt is proved to be bad, although in the case of the latter the claim for relief can be made in any tax year after the debt is proved to be bad. The only restraint on claiming relief for a debt which later proves to be bad is that the claim must be made in relation to a tax year which is within seven years of the cessation of the trade.

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).