Post-cessation receipts and section 196 deductions: worked examples
Short version. Section 196 can reduce a taxable post-cessation receipt by qualifying losses, expenses or debits. A £1,000 receipt less an allowable £200 deduction leaves £800 in CT600 box 205. Eligibility for the deduction and the tax rate are separate questions.
On this page
1. Understand the treatment
CTA 2009 section 196 allows amounts that would have been deducted from or set against the former trade’s profits had the trade continued. It excludes amounts arising directly or indirectly from cessation itself, and amounts already allowed under another Tax Acts provision.
HMRC’s ordering guidance requires qualifying expenditure to be set against same-trade post-cessation receipts in the period first. Where expenditure spans periods, earlier receipts have priority, but a deduction cannot precede the expense. Prepare that treatment before entering a deduction for each return. The service does not determine a cross-period claim for you.
2. Fictional worked example
These fictional examples assume the full section 196 conditions are met, no other reliefs, and a period wholly after 1 April 2023.
| Figure | Example A | Example B |
|---|---|---|
| Gross receipt | £1,000 | £1,000 |
| Entered deduction | £200 | £1,200 |
| Net taxable receipt | £800 | £0 |
Example A produces £152 tax at 19% for a company meeting the small-profits conditions, or £200 at 25% for a CIHC. For the 19% comparison, assume a 12-month UK-resident period, no associated companies, no ring fence profits and augmented profits within the lower limit.
Example B leaves £200 above the receipt. The service does not carry that excess forward or use it against ordinary other income. HMRC describes other possible relief mechanisms, whose conditions need separate consideration. A zero net receipt is not a conclusion that all other relief is unavailable.
3. Common mistakes
- Deducting the same cost twice or including a cost caused by cessation itself.
- Entering the net £800 as the gross receipt and then deducting £200 again.
- Duplicating the receipt on both CT600 returns of a long accounts period. Enter each return’s own receipt and prepared deduction.
4. How to file
SimpleCompanyTax prepares supported micro-company returns from your figures. Follow the exact filing steps and review each return’s computation before approving the filing. For more background, read receipt rules and the unsupported section 198 election.
This is general guidance. Your company’s treatment depends on its circumstances. Decide the classification and claims yourself or with your accountant.