Income Tax (Trading and Other Income) Act 2005 section 185

Election for valuation at cost

Section 185 allows a person who has ceased carrying on a profession or vocation to elect that their closing work in progress is valued at its actual cost rather than at market value, with any profit element being deferred until payment is received.

• A person who was carrying on a profession or vocation immediately before it ceased may elect to value closing work in progress at its actual cost
• If the election is made, any amount received for the transfer of that work in excess of its actual cost is treated as a post-cessation receipt rather than as trading profit
• The effect is to defer the tax charge on the profit element of work in progress until the money is actually received after cessation
• The election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year in which the cessation occurred