Income Tax (Trading and Other Income) Act 2005 section 96A

Capital receipts under, or after leaving, cash basis

Section 96A sets out how capital receipts — such as disposal proceeds or capital refunds — must be treated as taxable trading receipts when a business uses or has used the cash basis of accounting.

• Where a trader using the cash basis receives disposal proceeds or a capital refund on an asset for which capital expenditure was previously deducted, the receipt must be brought into account as a trading receipt (Case 1).
• Where a trader has left the cash basis and later receives disposal proceeds or a capital refund on an asset for which capital expenditure was deducted while on the cash basis (or before entering it), the receipt must similarly be brought into account as a trading receipt (Case 2).
• If only part of the total capital expenditure on the asset was previously deducted, the taxable receipt is proportionately reduced; and no amount is taxed under this section to the extent it is already taxed elsewhere or treated as a disposal value for capital allowances purposes.
• A trader who stops using an asset for the trade, or who materially increases non-business use of an asset, is treated as having disposed of it at market value, potentially triggering a taxable receipt under this section.