Income Tax (Trading and Other Income) Act 2005

Valuation of work in progress

182 Valuation of work in progress on cessation

(1) If—

(a) a person permanently ceases to carry on a profession or vocation, and

(b) the work in progress is valued in calculating the profits of the profession or vocation,

the value must be determined in accordance with section 184 (basis of valuation of work in progress) or 185 (election for valuation at cost).

(2) If there is a change in the persons carrying on a profession, subsection (1) does not apply so long as a person carrying on the profession immediately before the change continues to carry it on after the change.

(3) If an individual carries on a profession alone or a vocation, subsection (1) does not apply if the cessation is because of the individual’s death.

183 Meaning of “work in progress”

(1) In this Chapter “work in progress” means services performed in the ordinary course of the profession or vocation—

(a) the performance of which is wholly or partly completed at the time of the cessation, and

(b) for which it would be reasonable to expect that a charge would be made if there were no cessation and, in the case of partly completed services, their performance were fully completed,

and includes any article produced, and any material used, in the performance of any such services.

(2) In this Chapter references to the transfer of work in progress include the transfer of any benefits and rights which accrue, or might reasonably be expected to accrue, from the performance of any such services.

184 Basis of valuation of work in progress

(1) If the work in progress is transferred for money or other valuable consideration to a person who—

(a) carries on, or intends to carry on, a profession or vocation in the United Kingdom, and

(b) is entitled to deduct the cost of the work as an expense in calculating the profits of that profession or vocation for income or corporation tax purposes,

the value of the work is taken to be the amount paid or other consideration given for the transfer.

(2) In any other case, the value of the work is taken to be the amount which would have been paid for a transfer of the work at the time of the cessation as between independent parties dealing at arm’s length.

(3) These rules are subject to any election under section 185 (election for valuation at cost).

185 Election for valuation at cost

(1) The person who was carrying on the profession or vocation immediately before the cessation may elect that—

(a) the value of work in progress brought into account in calculating the profits of the period immediately before the cessation is to be the actual cost of the work, and

(b) the amount by which any sums received for the transfer of the work exceed the actual cost of the work is to be treated as a post-cessation receipt (see Chapter 18).

(2) An election under this section must be made on or before the first anniversary of the normal self-assessment filing date for the tax year in which the cessation occurred.