Income Tax (Trading and Other Income) Act 2005 section 249

Debts released after cessation

Section 249 deals with the tax treatment of trade debts that are released or forgiven after a person has permanently ceased to carry on their trade.

• Where a trade expense was previously deducted in calculating trade profits and gave rise to a debt, and the trade has since permanently ceased, any subsequent release of that debt is treated as a taxable post-cessation receipt.
• The section applies whether the original deduction was claimed for income tax or corporation tax purposes, covering situations where a trade and its debts may pass between companies and individuals.
• The debt release is only caught by this provision if it does not form part of a statutory insolvency arrangement, such as a formal voluntary arrangement or administration.
• A company ceasing to be within the charge to corporation tax in respect of a trade is treated as a permanent cessation for the purposes of this section, which can apply to non-resident companies that move from income tax to corporation tax liability.