Specific deductions: bad & doubtful debts: evidence required
The following guidance does not apply to bad money debts of companies which are dealt with under the loan relationship rules. See BIM42701.
Where there is insufficient information available to determine whether a deduction for a bad debt or a bad debt provision fulfils the criteria at BIM42701, it may be necessary to identify each debt involved and establish:
- how the extent of its doubtfulness was evaluated, and
- when this was done, and
- by whom, and
- what specific information was used in arriving at that valuation.
Typically, this requires sight of all the evidence available, at the relevant date, to the creditor trader regarding the creditworthiness of the debtor. This will include copies of all correspondence, both internal (such as memos and minutes of meetings at which the matter was considered) and external (correspondence with the debtor, solicitors, banks, factoring agencies, etc. and any reports obtained concerning the financial position of the debtor), relating to the transactions in question covering the period up until the time a reserve for the debt was entered in the creditor’s books.