Post-Cessation Receipts and Their Treatment

A business may receive income after cessation, such as late customer payments, insurance recoveries, or the settlement of previously doubtful debts.

These post-cessation receipts are taxable as trading income, but they do not require the reopening of the final set of trading accounts.

Receipts arising within six years of cessation can be carried back to the date of cessation if beneficial.

Methods of Relief for Post-Cessation Expenses (Self-Employed & Partnerships)

Relief for post-cessation expenses follows a statutory order:

1. Deduction Against Post-Cessation Receipts

If the former business receives post-cessation income, allowable expenses are first set against those receipts.

2. Sideways Relief Against Total Income

Where expenses exceed receipts, or no receipts arise, individuals can claim post-cessation trade relief. This allows a deduction against total income for the tax year in which the payment is made.

Claim deadline: First anniversary of the 31 January filing deadline.

Example: A qualifying payment in 2025/26 must be claimed by 31 January 2028.

3. Deduction Against Capital Gains

Any remaining unrelieved amount can be deducted from capital gains of the same tax year.

4. Carry Forward

Unused expenses may be carried forward to offset future post-cessation receipts, though if no such receipts arise, the balance is lost.

Companies and Post-Cessation Expenses

Companies face much more restrictive rules. They may only offset post-cessation expenses against post-cessation receipts of the same trade. If no such receipts arise, the expense is not deductible.

There is no sideways relief for companies.

Income Tax Relief Restrictions

Where a loss arises from post-cessation expenses after offsetting receipts, sideways relief is limited by the income tax relief cap for individuals:

• £50,000 or
• 25% of adjusted total income

Whichever is lower.

After offsetting against income, any remaining expenses may be set against capital gains for the same tax year.

Outstanding Debts at Cessation

If a trader had unpaid business debts at the date of cessation, these can restrict the relief available for post-cessation expenses. If an unpaid debt limited relief in an earlier year, it cannot later be revived.

Should the taxpayer later settle that outstanding debt, the payment becomes a new qualifying post-cessation expense.

Updates for 2025/26

As at the latest guidance for the 2025/26 tax year:

• The fundamental rules governing post-cessation expenses remain unchanged.
• The income tax relief cap continues to apply as in previous years.
• Claim deadlines and the six-year carry-back window remain the same.

Taxpayers should continue to consider the order of relief and the restriction rules carefully when calculating available deductions.

How Trueman Brown Can Help You With post-cessation expenses

A business may receive income after cessation, such as late customer payments, insurance recoveries, or the settlement of previously doubtful debts.

These post-cessation receipts are taxable as trading income, but they do not require the reopening of the final set of trading accounts.

Receipts arising within six years of cessation can be carried back to the date of cessation if beneficial.

Navigating post-cessation expenses can be complex, especially when dealing with multiple years, outstanding debts, and mixed relief claims.

At Trueman Brown, we can help you:

• Identify qualifying expenses
• Optimise relief claims in the correct statutory order
• Assess tax efficiency for sideways and capital gains relief
• Ensure compliance with 2025/26 deadlines

For tailored guidance, contact mark@truemanbrown.co.uk or call 01708 397262.

FAQs about post-cessation expenses

What counts as a post-cessation expense?
Any cost incurred after cessation that would have been deductible had the trade continued and that relates wholly to the former trade.

Can companies claim sideways relief?
No. Only individuals and partnerships can set expenses against total income or capital gains.

Is there a time limit for claiming relief?
Yes. For sideways relief, the claim must be made by 31 January following the first anniversary of the filing deadline.

What if I receive income years after cessation?
Receipts received within six years can be carried back to the cessation date if advantageous.

Do unpaid debts impact relief?
Yes. Outstanding debts at cessation can restrict allowable relief until settled.