Corporation Tax Act 2009

Chapter 15 Post-cessation receipts

Charge to tax on post-cessation receipts

188 Charge to tax on post-cessation receipts

The charge to corporation tax on income applies to post-cessation receipts arising from a trade.

189 Extent of charge to tax

(1) A post-cessation receipt is chargeable to tax under this Chapter only so far as it is not otherwise chargeable to corporation or income tax.

(2) Accordingly, a post-cessation receipt arising from a trade is not chargeable to tax under this Chapter so far as it is brought into account in calculating the profits of the trade of any period.

(3) A post-cessation receipt is not chargeable to tax under this Chapter if—

(a) it is received by or on behalf of a non-UK resident company which is beneficially entitled to it, and

(b) it represents income arising outside the United Kingdom.

(4) A post-cessation receipt is not chargeable to tax under this Chapter if it arises from a trade carried on wholly outside the United Kingdom.

Meaning of “post-cessation receipts”

190 Basic meaning of “post-cessation receipt”

(1) In this Part “post-cessation receipt” means a sum—

(a) which is received after a person permanently ceases to carry on a trade, and

(b) which arises from the carrying on of the trade before the cessation.

(2) In this Chapter, except in sections 194 and 195, references to a person permanently ceasing to carry on a trade include—

(a) in the case of a company, the occurrence of an event treated under section 18 of ITTOIA 2005 (companies beginning or ceasing to be within charge to income tax) as the company permanently ceasing to carry on the trade, and

(b) in the case of a trade carried on by a person in partnership, the occurrence of an event treated under section 246(4) of ITTOIA 2005 (basic meaning of “post-cessation receipt”) as the person permanently ceasing to carry on the trade.

191 Other rules about what counts as post-cessation receipts

(1) The following provisions treat certain amounts as post-cessation receipts for the purposes of this Part—

• section 82(6) (contributions to local enterprise organisations or urban regeneration companies),

• section 101(3) (distribution of assets of mutual concerns),

• section 108(3) (receipt of benefits by donor or connected person),

• section 192 (debts paid after cessation),

• section 193 (debts released after cessation), as qualified, where appropriate, by section 56(4) (car or motor cycle hire),

• section 194 (transfer of rights if transferee does not carry on trade), and

• section 1277 (income charged on withdrawal of relief after source ceases: unremittable income).

(2) Section 95 (acquisition of trade: receipts from transferor’s trade) and section 194 (transfer of rights if transferee does not carry on trade) treat certain amounts as not being post-cessation receipts for the purposes of this Part.

Sums treated as post-cessation receipts

192 Debts paid after cessation

(1) This section applies if, in calculating the profits of a trade for corporation or income tax purposes, a deduction is made in respect of a debt under—

(a) section 55 (bad debts), or

(b) section 35 of ITTOIA 2005 (bad and doubtful debts),

and a person permanently ceases to carry on the trade.

(2) A sum received after the cessation is treated as a post-cessation receipt so far as the deduction is made.

193 Debts released after cessation

(1) This section applies if—

(a) in calculating the profits of a trade of any period for corporation or income tax purposes, a deduction is allowed for the expense giving rise to a debt owed by the person who carried on the trade,

(b) the person has permanently ceased to carry on the trade at or after the end of that period,

(c) after the cessation, all or part of the debt is released, and

(d) the release is not part of a statutory insolvency arrangement.

(2) The amount released is treated as a post-cessation receipt.

194 Transfer of rights if transferee does not carry on trade

(1) This section applies if—

(a) a company (“the transferor”) permanently ceases to carry on a trade,

(b) the transferor transfers to another person (“the transferee”) for value the right to receive sums arising from the carrying on of the trade, and

(c) the transferee does not subsequently carry on the trade.

(2) The transferor is treated as receiving a post-cessation receipt.

(3) The amount of the receipt is—

(a) the amount or value of the consideration for the transfer, if the transfer is at arm’s length, or

(b) the value of the rights transferred as between parties at arm’s length, if the transfer is not at arm’s length.

(4) Any sums mentioned in subsection (1)(b) which are received after the cessation of the trade are not post-cessation receipts.

(5) This section is subject to section 195 (transfer of trading stock).

Sums that are not post-cessation receipts

195 Transfer of trading stock

(1) When a company permanently ceases to carry on a trade, a sum realised by the transfer of trading stock is not a post-cessation receipt if a valuation of the stock is brought into account in accordance with Chapter 11 (valuation of stock).

(2) In this section “trading stock” has the meaning given by section 163.

Deductions

196 Allowable deductions

(1) In calculating the amount on which tax is charged under this Chapter, deductions are allowed in accordance with—

(a) this section, and

(b) section 197,

from the amount which would otherwise be chargeable to tax under this Chapter.

(2) A deduction is allowed for a loss, expense or debit which, if the person carrying on the trade had not permanently ceased to do so—

(a) would have been deducted in calculating the profits of the trade for corporation or income tax purposes, or

(b) would have been deducted from or set off against the profits of the trade for corporation or income tax purposes,

but no deduction is allowed if the loss, expense or debit arises directly or indirectly from the cessation itself.

(3) No deduction for an amount is allowed under this section if the amount has been allowed under any other provision of the Tax Acts.

197 Further rules about allowable deductions

(1) An amount may not be deducted more than once under section 196.

(2) A deduction under that section of a loss must be made from post-cessation receipts charged for an earlier accounting period in preference to those charged for a later accounting period.

(3) But this does not authorise the deduction of a loss from post-cessation receipts charged for an accounting period before the accounting period in which the loss is made.

Election to carry back

198 Election to carry back

(1) This section applies if a post-cessation receipt is received by a company in an accounting period beginning not later than 6 years after the company permanently ceased to carry on the trade.

(2) The company may elect that the tax chargeable in respect of the receipt is to be charged as if the receipt had been received on the date of the cessation (but see sections 199 and 200).

(3) The election must be made before the end of the period of two years beginning immediately after the end of the accounting period in which the receipt is received.

199 Deductions already made are not displaced

(1) This section applies if—

(a) a company which has permanently ceased to carry on a trade makes an election under section 198 in respect of a post-cessation receipt (“the carried back receipt”), and

(b) a deduction in respect of a loss has already been made under section 196 for an accounting period later than that in which the cessation occurred.

(2) Nothing in section 196 (read with section 197(2)) requires or permits a deduction in respect of that loss to be allowed, as a result of the election, for the accounting period in which the cessation occurred instead of the accounting period for which the deduction has already been made.

(3) But if the deduction was made for the accounting period in which the carried back receipt was received, subsection (2) applies to the loss only so far as it has been deducted from post-cessation receipts other than the carried back receipt.

200 Election given effect in accounting period in which receipt is received

(1) If a company makes an election under section 198, the additional tax is payable for the accounting period in which the receipt is received (and not for the accounting period in which the cessation occurred).

(2) In subsection (1) “the additional tax” means an amount of tax equal to the difference between—

(a) the amount of tax that is chargeable on the company for the accounting period in which the cessation occurred (“amount A”), and

(b) the amount of tax that would have been chargeable on the company for that period if the election had not been made (“amount B”).

(3) If—

(a) the company has made, under section 198, one or more other elections for receipts to be treated as received in the period in which the cessation occurred, and

(b) effect has been given to those elections,

the effect of those elections is taken into account in determining amounts A and B.