Annex 1: Minor Changes in the Law Change 17: Trading income etc: redundancy payments: legislate the practice of allowing voluntary payments made in connection with a cessation of part of a trade or business: sections 79 and 1242 and Schedule 1
This change legislates the practice of allowing as a deduction voluntary redundancy payments made in connection with the cessation of part of a trade or business.
The change brings the income tax and corporation tax codes into line. It also applies to management expenses.
Statement of Practice 11/81 extends the operation of section 90 of ICTA to payments in connection with the cessation of part of a trade. Section 79(1) and (4) of this Act gives effect to that practice. And section 1242(1) and (4) extends the rule to the case where a part of an investment business ceases to be carried on.
Schedule 1 to this Act amends ITTOIA to make clear that the practice applies to the cessation of part of a trade even if there is a change in the membership of a partnership.
If part of the trade or business continues, it would be possible to allow the deduction in the period of account in which the payment is made. But it is logical, and usually beneficial to the taxpayer, to make the deduction in the last period of account in which the part of the trade or business was carried on.
This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with generally accepted practice.