Post cessation receipts and expenses

Money that arrives after a trade has permanently ceased, and that would have been trading income if the trade had continued, is taxed as a post cessation receipt in the year it is received, unless you elect to carry it back to the date of cessation. Costs paid after cessation, such as putting right defective work or chasing old debts, can be set against those receipts and, if they fall within tightly defined categories and arise within seven years, against your total income. A customer debt that goes bad after the business has closed is relieved the same way.

What counts as a post cessation receipt?

The charge is in Chapter 18 of Part 2 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005), sections 241 to 257, and HMRC’s guidance is at BIM90000 onwards. Under sections 246 and 247 a post cessation receipt is a sum that:

is received after a person permanently ceases to carry on a trade, profession or vocation;
arises from carrying on that trade before the cessation; and
is not otherwise chargeable to tax.

The last condition is important. If an amount was correctly included in the final accounts as a debtor, collecting it later is not a new receipt; it was already taxed. Post cessation receipts are typically amounts that were never recognised before closure. The legislation also names specific items, including:

Debts recovered after cessation that had been deducted as bad or doubtful while trading, to the extent of the deduction given (section 248, BIM90035).
Debts you owed that are released after cessation, where you had a deduction for the unpaid expense and the release is not part of a statutory insolvency arrangement (section 249, BIM90040).
Sums received for transferring the right to receive income to someone who does not carry on the trade (BIM90050).
Where a profession’s work in progress was valued at cost on cessation, the difference between that cost and what is later received for it (BIM90030).

If the cash basis applied immediately before cessation, a sum is a post cessation receipt only if it would have been brought in under the cash basis had it been received while trading. For the wider closing down process see our page on stopping self employment.

Who pays the tax, and is National Insurance due?

Section 245 makes the person who receives the money liable, and that need not be the former trader. Executors collecting a dead trader’s fees, or a former partner receiving a share of old income, are taxed on what they receive. A partner who leaves a firm that carries on is treated as having ceased, so sums falling within the rules are post cessation receipts in their hands (BIM90030).

The amount charged is the total received in the tax year, less any post cessation expenses of that year and any amounts carried back. Class 4 National Insurance is not payable, because section 15 of the Social Security Contributions and Benefits Act 1992 only charges profits taxed as trading income under Chapter 2 of Part 2 ITTOIA 2005 (BIM90010).

The receipt also does not mean the trade has restarted. HMRC accepts that a trade can be permanently discontinued even though debts remain to be collected (BIM80575), but it warns at BIM90005 that continuing receipts can sometimes show the trade has not ceased at all, using the example of an author who stops writing.

Can a receipt be taxed as if it arrived on the date of cessation?

Yes. Section 257 lets you elect to treat a receipt arising within six years of cessation as received on the date the trade ceased. HMRC explains at BIM90075 that the earlier return is not reopened. Instead, the extra tax is worked out at the earlier year’s rates and allowances and added to the bill for the year the money actually arrived. The election must be made by the first anniversary of the normal filing date for the year of receipt; for most people that is 31 January almost two years after the end of that tax year.

On the return, carried back receipts go in boxes 14 and 15 of the SA101 additional information pages (“Business receipts taxed as income of an earlier year”), with the earlier year entered in box 15. The election helps where the cessation year was taxed at a lower marginal rate than the year of receipt.

What happens when a customer debt goes bad after the trade ends?

This is the mirror image of a recovered bad debt. If a trade debt was included in profits before cessation and, after cessation, it proves to be bad or is released under a statutory insolvency arrangement, a “qualifying event” occurs under section 98 of the Income Tax Act 2007 (ITA 2007). The amount written off is a post cessation expense.

HMRC says at BIM90115 that relief is given for the tax year in which the debt is proved bad or released, and that a bad debt claim can be made later, provided the tax year concerned is within seven years of cessation. If any of the debt is later recovered, that recovery is itself a post cessation receipt of the year it arrives (BIM90035). How debts are treated while you are still trading is covered in our guide to bad debts.

Which costs after cessation qualify for relief?

Under ITTOIA 2005 section 254 a post cessation expense must be one that would have been deductible had the trade continued. It still has to pass the wholly and exclusively test and be revenue rather than capital, and it cannot relate to the cessation itself (BIM90080). Relief against total income under ITA 2007 section 96 is narrower again. Section 97 limits “qualifying payments” to amounts paid:

to remedy defective work done, goods supplied or services provided;
as damages for such defects, whether awarded by a court or agreed;
for legal or other professional services in connection with a claim that the work, goods or services were defective;
to insure against those liabilities or legal costs; or
to collect, or try to collect, debts that were taken into account in the trading profits.

Other post cessation costs that pass the basic test can still be set against post cessation receipts, but cannot reduce other income.

In what order is relief given?

HMRC sets out a fixed order at BIM90090:

Deduct post cessation expenses from post cessation receipts of the same trade in the same period. Individuals cannot set expenses against recovered bad debts or receipts relating to post cessation expenses (BIM90095).
Claim post cessation trade relief under ITA 2007 section 96 against total income of the tax year in which the qualifying payment is made or the qualifying event happens, but only within seven years of cessation. The deduction is made at Step 2 of the section 23 income tax calculation. The claim is due by the first anniversary of the normal filing date for that year, and on the return it goes in box 6 of the SA101 pages.
If expenses exceed total income, claim the excess against chargeable gains of the same year under sections 261D and 261E of the Taxation of Chargeable Gains Act 1992, capped at the net gains (BIM90130).
Carry anything left forward against future post cessation receipts of the same trade (BIM90135).

Two restrictions catch people out. First, section 99 reduces the relief by trade expenses that were deducted in the accounts but are still unpaid at the end of the tax year; when those bills are later paid they become qualifying payments (BIM90105). Second, section 96 relief is one of the reliefs within the cap on income tax reliefs in ITA 2007 section 24A. A targeted anti avoidance rule from 12 January 2012 also blocks relief where obtaining a tax reduction was a main purpose of the arrangements (BIM90100).

How does it work in practice?

Illustration only. Tom, a self employed builder, ceased trading in July 2025. His final accounts included £4,000 owed by a customer and £600 of unpaid supplier invoices. In 2026 to 2027:

The customer goes into liquidation and the £4,000 debt proves bad: a qualifying event.
A former client claims for defective work and Tom pays £2,500 to put it right: a qualifying payment.
He has no post cessation receipts, so both amounts go to section 96 relief: £6,500.
The £600 still unpaid at 5 April 2027 reduces the claim to £5,900, deducted from his 2026 to 2027 total income.

If Tom pays the suppliers in 2027 to 2028, that £600 becomes a qualifying payment for that year. If the liquidator later pays a dividend on the bad debt, that payment is a post cessation receipt taxable when received.

What are the common mistakes?

Taxing a debtor twice: once in the final accounts and again when the cash arrives.
Claiming section 96 relief for ordinary running costs such as storage or accountancy, which are not qualifying payments.
Forgetting the reduction for unpaid trade expenses.
Missing the seven year window or the claim deadline.
Paying Class 4 National Insurance on post cessation receipts.
Overlooking a carry back election that would have taxed the receipt at a lower rate.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.