Unused Losses and Post Cessation Receipts

Unused Losses and Post Cessation Receipts

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My client is looking for a second opinion on a Tax issue. I am not able to confirm my thoughts for sure, so I thought i would come to the people that know for the solution. I should explain that I am the bookkeeper/management accountant whilst a separate firm deals with Year Ends. The Year End firm is suggesting a tax treatment that does not seem fair to my client (i have to agree) and therefore is questioning his tax returns.

This is the situation:

In 2013 Year End Corporation Tax Return showed a carried forward loss of £250k, during the year the business recorded a chargeable gain on the sale of the business back to the major symbol group who leased him the store. Losses from the year were used against the chargeable gain, the rest were added to the unused loss carried forward.

In 2014 the symbol group and main trade creditor has formally written off £100k of the balance due to them, this means that the company has a post cessation receipt to enter in the 2014 Accounts.

In 2015 the company has also received a redress payment from the bank around Hedge Interest loan mis-selling of around £190k.

The Accountant has told my client that both receipts are taxable in full as the client is no longer trading and therefore the losses brought forward cannot be used.

Obviously this seems grossly unfair as both receipts are related to the trade of the company and were both causes of the unused losses.

In trying to help my client I have been digging around corporation tax legislation, and keep coming up with the Post Cessation Receipts section of CT2009 sections 195-198, and explanatory notes, it seems to me that these sections allow the unused losses to be used against the receipts as the receipts would have been part of the trade if the business hadn't ceased trading.

Furthermore it says there is a possibility to make an election to carry back the receipts to treat them as if they happened on the last day of trade but not an obligation to do so, as this isn't tax efficient (due to chargeable gain needing current year losses) my client wouldn't benefit from making the election.

So to the good people of AccountingWeb, what do you think?

Are the Year End Accountants right or are they taking the path of possible least resistance, can unused losses be set against these post cessation receipts relating to the trade of the business?

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