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Debts paid after cessation of the trade

Where a deduction for a bad or doubtful debt has been claimed whilst trading and subsequently the trade is permanently discontinued, any amount of the debt recovered after the discontinuance is treated as a post-cessation receipt¹. It is taxable in the hands of the recipient, to the extent of the amount that was originally deducted from trading profits.

This provision can apply in the following circumstances:

1. Ìý

   •ÌýÌýÌýÌý to a person liable to income tax who recovers a debt, relief for which has been previously given to a company liable to corporation tax²

2. Ìý

   •ÌýÌýÌýÌý to a person liable to corporation tax who recovers a debt, relief for which has been previously given to a person liable to income tax³

For income tax purposes, in some instances relief for the bad debt may not have arisen until after the trade had been permanently discontinued⁴. Any amount subsequently recovered in respect of that debt is also