Annex 1: Minor changes in the law made by the Act: Change 156: Post-cessation receipts: paragraph 61 of Schedule 2
This change removes the charge on some receipts of individuals born before 6 April 1917 following the cessation of a trade etc before 6 April 2000 or a change of accounting basis before 6 April 1999.
As a result, section 109 of ICTA (which applies in the case of a charge under section 104, but not section 103, of ICTA) need not be rewritten.
Section 104 of ICTA applies where profits have been calculated on a conventional basis (that is, otherwise than by reference to earnings). The section charges tax in two circumstances. First, if there are post-cessation receipts (“sums arising from the carrying on of the trade … before the discontinuance … not brought to account … before the discontinuance” – section 104(2) of ICTA). Second, if there are sums received after a change of accounting basis (section 104(4) of ICTA), being “sums arising from the carrying on of the trade … before the change … not brought to account … for any period” – section 104(5) of ICTA.
	Post-cessation receiptsThe charge on post-cessation receipts is restricted to sums that are not “otherwise chargeable to tax” (section 104(2) of ICTA). So, if they are chargeable under section 103 of ICTA they are not charged under section 104 of ICTA. The effect of this restriction is that the only post-cessation receipts charged by section 104 of ICTA (under subsection (2)) are those excluded from section 103 of ICTA by section 103(2)(b). This is where the profits are calculated on a “conventional” basis and the receipt would have been included in profits if those profits had been calculated by reference to earnings.
	Change of basisThe second charge under section 104 of ICTA, under subsection (4) on a change of accounting basis, was replaced by section 44(3) of FA 1998 but only for changes of accounting basis on or after 6 April 1999. The replacement charge was under Schedule 6 to FA 1998, later replaced by Schedule 22 to FA 2002. The two sets of rules tackled a change of basis in different ways: the charge under section 104(4) of ICTA was triggered by the receipt of a sum (which may be some time after the change of accounting basis); the replacement charges arise on the change of accounting basis.So section 104(4) of ICTA may theoretically apply, despite its repeal, to a sum which arose before a change of accounting basis before 6 April 1999 but which is received in 2005-06 or later.Section 109 of ICTA was introduced at the same time as the charges under section 104 to give a measure of relief for cash basis people who were (at the time – in 1968) within ten years of retirement.
	Who is chargeable?There are three possibilities of a charge under section 104 of ICTA:(a)The recipient ceased trading (calculating profits on a conventional basis) on or before 5 April 2000 (the last date possible, unless the recipient is a barrister) and receives a sum in 2005-06 or later.(b)The recipient ceased trading (calculating profits on a conventional basis) after 5 April 2000 and receives a sum in 2005-06 or later. Such a person must be a barrister in the early years of practice (section 43 of FA 1998) because that is the only person for whom the earnings basis is not obligatory under section 42 of FA 1998.(c)The recipient had a change of accounting basis before 6 April 1999 and receives a sum in 2005-06 or later.
	The approach of the ActThis transitional provision changes the spreading relief in section 109 of ICTA into an exemption. But the exemption, like the relief in section 109 of ICTA, applies only to individuals born before 6 April 1917. For those individuals the effect is as follows:The charge for individuals within paragraph (a) is removed.An individual within paragraph (b) cannot both have been carrying on the profession on 18 March 1968 (as required by section 109(1)(a) of ICTA) and be in the early years of practice on cessation after 5 April 2000. So the relief in section 109 of ICTA does not apply.Section 104 of ICTA no longer applies to pre-1999 changes of accounting basis for individuals born before 6 April 1917. So the charge for individuals within paragraph (c) is removed.
This change is in taxpayers' favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small.