Income Tax (Trading and Other Income) Act 2005 section 248

Debts paid after cessation

Section 248 deals with the tax treatment of debts that were written off (or provided for) during the life of a trade but are subsequently recovered after the trade has permanently ceased.

• Where a deduction was claimed for a bad or doubtful debt during the life of a trade and the debt is later recovered after the trade has permanently ceased, the amount recovered is treated as a taxable post-cessation receipt to the extent of the original deduction.
• This applies whether the original deduction was claimed for income tax purposes under section 35 (bad and doubtful debts) or for corporation tax purposes under the corresponding corporation tax provision.
• Where post-cessation trade relief has been given under section 96 of ITA 2007 in respect of a debt owed to the former trader, any subsequent recovery of that debt is also treated as a post-cessation receipt to the extent that relief was given.
• The provision ensures that the tax benefit of the original deduction or relief is effectively reversed if the debt is ultimately paid, preventing a windfall where a trader receives a tax-free recovery of a previously deducted amount.