Income Tax (Trading and Other Income) Act 2005 section 307E

Capital receipts under, or after leaving, cash basis

Section 307E sets out how capital receipts (such as disposal proceeds or capital refunds) relating to property business assets must be brought into account as taxable receipts, both while using the cash basis and after switching away from it.

• Where an asset is disposed of during a cash basis year and capital expenditure on that asset was previously deducted (whether under cash basis or GAAP), the disposal proceeds or capital refund must be recognised as a taxable receipt (Case 1)
• Where an asset is disposed of in a year when the business has returned to GAAP after previously using the cash basis, and capital expenditure on that asset was deducted during a cash basis year or an earlier GAAP year, the proceeds must similarly be brought into account (Case 2)
• If only part of the total capital expenditure on the asset was previously deducted, the amount brought into account as a receipt is proportionately reduced; and amounts already taxed elsewhere (including as capital allowance disposal values) are not taxed again
• Capital expenditure includes spending on the provision, alteration or disposal of an asset (including its creation, construction or acquisition), and interaction with capital allowances pools under CAA 2001 is taken into account when determining whether expenditure has been relieved