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Post cessation transactions

20 June 2024

Tax relief may be available for post-cessation expenses of a trade. To be an allowable post-cessation expense the trade must have ceased and the expense must have been deductible in calculating the trading profits.

If a trade has ceased, its post-cessation expenses might qualify for tax relief. These expenses must have been deductible when calculating trading profits. This process encourages financial responsibility and strategic planning.

This means the expense must pass the wholly and exclusively test. It must be revenue, not capital, expenditure. If necessary, you can apportion the expenditure. Understanding these nuances can lead to more informed financial decisions.

The person incurring the expenditure and the type of expenditure involved affect the relief method. This underlines the importance of careful record-keeping and understanding the nature of each expense.

Here are examples of likely post-cessation expenses:

  • Costs to remedy defective work done, goods supplied, or services rendered during business operations. This includes damages for such defects, whether a court awards them or they are agreed upon during claim negotiations.
  • Legal or other professional costs related to the above.
  • Costs to insure against liabilities from any such claim or the incurring of such expenses.
  • Costs to collect, or attempt to collect, debts considered when computing the trade’s profits before discontinuance.

These expenses can significantly impact the financial health of the business. Being aware of these potential costs can help businesses prepare for unforeseen circumstances. It’s a proactive approach that can lead to better financial stability.

Tax purposes do not allow deductions for expenses specifically related to the cessation itself. However, understanding what is and isn’t deductible can help avoid potential tax pitfalls.

Source: HM Revenue & Customs Tue, 18 Jun 2024 00:00:00 +0100

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