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HMRC internal manual

Business Income Manual

Specific deductions: bad & doubtful debts: debts released

Liability for trade debt released by creditor

S97, S249 Income Tax (Trading and Other Income) Act 2005, S94, S193 Corporation Tax Act 2009

Where a trader makes a composition with his or her creditors (in other words, makes an offer of payment for less than the amount owed), the amount forgone by the creditors normally ranks as a trading receipt of the debtor (see BIM40201 onwards). If the debtor has ceased trading before the debt is released, the amount released is charged as a post-cessation receipt (see BIM90000 onwards).

However, this does not apply where the debt is released as part of a statutory insolvency arrangement. For the meaning of ‘statutory insolvency arrangement’ see BIM42701.

For the relief available to the creditor for the bad debt see BIM42701.