Barristers tax rules

Post cessation receipts

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Hello I am assisting with the tax return of a barrister who "ceased" in 2015-16.  Income is derived from a variety of sources some of which are taxed on an accruals basis and some on a cash basis.  As I understand it the cash basis income is so taxed not as a result of any cash basis "election" (the historical arrangement pre-dates the general availability of cash basis elections I think), but more because of the contingent and uncertain nature of the income.

Anyway, there is a fair amount of funds coming in post cessation, of the "cash basis" nature.  My principal concern is whether there would be a 2% class 4 NIC charge on these amounts.  BIM seems to indicate that post-cessation receipts are not liable to 4NIC, but I am not entirely convinced that these receipts are what they have in mind.  Certainly the numbers are a bit too large to get it wrong.

I am also not entirely certain where these go in the tax return but I expect that will be apparent when I have sorted out the rest.

Anyone else familiar with this scenario?

Thanks

With kind regards

Clint Westwood

Replies (3)

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Replying to fawltybasil2575:
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By nogammonsinanundoubledgame
28th Jun 2016 07:56

Many thanks Basil

A couple of follow-up points:

1) Where to enter the income on the SA return

I had not noticed box 14 of SA101 page Ai1 before, but now that I see it I am confused. I had been given to understand that the post-cessation receipts should be taxed in the tax year of receipt. This is expressly confirmed in BIM90010 to which you linked. However the box in Ai1 is for entering post-cessation receipts that should be taxed in an earlier year. Can you give an example of when a post-cessation receipt SHOULD be taxed in an earlier year, and how to you determine the year in which it should be taxed? SA101 Notes, page AiN2 provides no guidance here.

Incidentally, I am inclined to use boxes 17 and 18 of the main SA100 form for post-cessation receipts received in 2015-16 in relation to a business that ceased in 2015-16, as they are not to be taxed in an "earlier year" whichever way you look at it. Right or wrong?

2) Accounting for debtors on cessation

I thought (I don't know where from) that even where income was taxed on a cash basis during the currency of the activity, there was an obligation to bring in a debtor on cessation. Then items that would fall within the post-cessation receipts regulations would only be items that had not been accrued as a debtor, but in the meantime those which had been accrued as a debtor would be subject to 4NIC. Did I have that wrong? Or maybe it is another area where barristers have their own rules?

Thanks (0)
By Marion Hayes
28th Jun 2016 09:37

If a receipt arrives within 6 years of cessation your client can elect for it to be taxed on the date of cessation.
Unlikely to be beneficial for a barrister but could have an impact on restriction of personal allowances or rate bands.
Profits to cessation are calculated on normal accounting principles, so any amount included as a debtor is not a post cessation receipt but income such as legal aid which is unascertainable at the date of cessation would be I think.

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Replying to Marion Hayes:
By Marion Hayes
28th Jun 2016 09:42

p.s. taking it out of the later year creates a stand alone charge in the current tax return using the rates etc of the prior year so you are not amending any earlier years returns/liabilities

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