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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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.
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