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HMRC internal manual

Business Income Manual

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Specific deductions: bad & doubtful debts: assets accepted

S251(3) Taxation of Chargeable Gains Act 1992

The following guidance does not apply to bad money debts of companies which are dealt with under the loan relationship rules. See BIM42701.

Traders sometimes accept assets (for example, real property or shares) in satisfaction of trading debts. Where the market value of the asset at the date of such an acceptance is less than the amount of the outstanding debt, the deficit may be allowed as a deduction, provided the trader agrees that, on a disposal of the asset, any excess of the disposal proceeds (up to the amount by which the debt exceeded the earlier valuation of the asset) will be brought into account as a trading receipt. The amount so brought into account is excluded from a charge to Capital Gains Tax; see CG53510 onwards. Any case of difficulty should be referred to CTISA (Technical).