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HMRC internal manual

Business Income Manual

Specific deductions: bad & doubtful debts: currency restrictions

S187-S191 Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005), S172-S175 Corporation Tax Act 2009 (CTA 2009)

Where a deduction is claimed in respect of a debt which cannot be paid or brought to the UK because of exchange control restrictions or because of a shortage of foreign currency in the debtor’s country, such debts are not bad or doubtful within the meaning of BIM42701.

Instead, a separate relief is available as follows.

The relief applies where an amount received by, or owed to, a trader is brought into account as a receipt in computing his profits, it is paid or owed in a territory outside the UK and some or all of it is unremittable. For these purposes, an amount is ‘unremittable’ if:

  • it is received but cannot be transferred to the UK because, and only because, of foreign exchange restrictions; or
  • it is owed but temporarily cannot be paid in the overseas territory, due only to such restrictions; or
  • it is owed and can be paid in the overseas territory but the amount paid there would not be transferable to the UK, due only to such restrictions.

‘Foreign exchange restrictions’ are restrictions imposed by the law of the overseas territory, by any executive action of its government or by the impossibility of obtaining their currency which is transferable to the UK.

Relief is given for the amount in question by deducting it from profits but not so as to create a trading loss. Any excess of unremittable amounts over profits for any period of account is carried forward to the next period of account, aggregated with any unremittable amounts for that period and used to reduce or extinguish profits for that period, and so on. If no profit has been made for a period of account, any unremittable amounts are similarly carried forward.

However, no such deduction is allowed to the extent that:

  • the amount in question is used to finance expenditure or investment outside the UK or is otherwise applied outside the UK; or
  • a deduction is allowed for it because it represents a bad or doubtful debt; or
  • it is an amount owed and an insurance recovery is received in respect of it,

and no deduction is allowed if relief under S842 ITTOIA 2005 or S1275 CTA 2009 (see SAIM1150) could be claimed instead.

Relief given for an unremittable amount or any part of it is withdrawn if, subsequently, the amount (or part) ceases to be unremittable or is exchanged for (or discharged by) a remittable amount, or is used to finance overseas expenditure, etc. or is deducted as a bad or doubtful debt or, in the case of an amount owed, is the subject of an insurance recovery. The amount (or part) is treated as a trading receipt for the period of account in which the said event occurs.