92 Receipts and losses accruing after change treated as discontinuance

Summary

This section applies where there is a change in the persons carrying on a trade or profession such that the undertaking is treated for tax purposes as if it has been permanently discontinued and a new one begun – see, for example, sections 69 and 1008. The effect is to apply the tax treatment contained in sections 91 and 95 to any post-cessation receipts (including bad debts recovered) of the discontinued trade. The section also provides that debts which are assigned to the person continuing the business and which subsequently prove irrecoverable are available for set off against profits/gains after the change.

Details

(1) The section applies where as a result of a change in the persons carrying on a trade or profession the trade or profession is treated for tax purposes as if it had been permanently discontinued and a new trade or profession commenced.

(2) The section applies section 91 and 95 where there is any such deemed discontinuance of a trade. The effect of this is to apply the tax treatment set out in sections 91 and 95 to any post-cessation receipts (including bad debts recovered) of such a discontinued trade. However, where the right to receive any such post-cessation receipts (including the right to recover bad debts) is transferred to the successor at the time of the change, section 91 is not to be applied. In such cases, any such receipts are treated for tax purposes as receipts of the successor’s business. For example, debts allowed to the predecessor as bad and doubtful under section 81(2)(i) but recovered by the successor (to whom the right to the debts was transferred at the time of the notional discontinuance) should be included as a receipt in computing the successor’s profits.

(3) Where a debt assigned to the persons carrying on the trade or profession after a change was credited for tax purposes before the change and subsequently proves to be irrecoverable, the appropriate deduction is to be given in computing the profits of the business after the change. Where a deduction has already been allowed under section 81(2)(i), the amount to be allowed after the change is limited to any excess of the irrecoverable debt over the deduction allowed before the change.

Relevant Date: Finance Act 2021