My company ceased trading over a year ago however it has incurred some expenses since cessation and continues to do so. Can my company get any relief from Corporation Tax for these expenses which have been paid?
The good news is that relief may be available for expenses incurred after a company’s trade has ceased, otherwise known as ‘post-cessation expenses’.
CTA2009 s196 (2) states:
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.
As when the trade was in place, any such expenses still have to be revenue in nature and meet the ‘wholly and exclusively’ criteria.
Expenses of post-cessation examples include the costs relating to the collection of debts which were taken into account in computing earlier trade profits before the trade ceased and remedying what is found to be defective work carried out prior to cessation. Other examples can be found at https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim90080 .
The use of the post-cessation expenses can be found at CTA2009 S197 which states that companies are able to obtain relief for these post-cessation expenses as a deduction against post-cessation receipts, if there are none in the same accounting period then the post-cessation receipts can be carried forward and deducted from the same trade’s future post-cessation receipts.
Post-cessation receipts, as found at CTA2009 s190, are receipts that would have been accounted for when calculating the profits of the trade had it continued. They will have been received after the trade permanently ceased and will have arisen due to the previous carrying on of the trade. More detail on post cessation receipts can be found at https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim90030 .
Unfortunately if the company does not have any post-cessation receipts at any point then the post-cessation expenses cannot be relieved.
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