BIM80720 - Post-cessation receipts: expenses: relief available under ICTA88/S109A: qualifying expenditure

The particular reliefs are given in subsection (2) and (4). Subsections (3), (4A) (5), and (6) either provide for sums to be chargeable or limit the reliefs. The relief applies to expenses and payments which are made within seven years of the discontinuance of the business.

The particular expenses relieved by Section 109A (2) (A) - (D) are:

Post-cessation payments made wholly and exclusively in:

• remedying defective work done, goods supplied, or services rendered while the business was continuing or as damages in respect of such defective work, goods or services whether awarded by a Court or agreed during negotiations on a claim;
• paying legal or other professional expenses incurred in connection with the costs above;
• insuring against liabilities arising out of any such claim or against the incurring of such expenses;
• collecting, or seeking to collect, debts which were taken into account in computing the profits of the trade before discontinuance.

For background on interpreting the words ’wholly and exclusively' see BIM37000 onwards. An item of expenditure required to satisfy this test can be apportioned between admissible and inadmissible elements if it is possible to identify and quantify a proportion incurred exclusively for business purposes. If it is not possible to do so then the whole of the expenditure is inadmissible - see, in the context of ICTA88/S74 (1)(a), Caillebotte v Quinn [1975] 50TC pages 227F/H.

The particular expenses relieved by Section 109A (4)

Post-cessation bad debts, that is sums owed to the business and taken into account (for example as sales, work done or services rendered) in computing its profits before discontinuance but which are subsequently

• shown to be bad, or
• wholly or partly released under a formal voluntary arrangement (see BIM42701).

For more detail on the relief for bad debts see BIM80745.