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HMRC internal manual

Corporate Finance Manual

Loan relationships: consortia companies and impairment: amount of restriction: effect of releases: further examples

Further examples on limit of impairment debits

Example 1

FD Ltd is a consortium company. It is owned

40% by RT plc, the holding company of a large group

40% by WD Ltd, a subsidiary of KX plc

20% by MC Ltd, a singleton company.

WD Ltd makes a loan of £200,000 to FD Ltd. FD Ltd can’t repay so in Year 1, WD writes off £100,000 as impaired. In the same year, FD Ltd surrenders losses of £80,000: £32,000 to RT plc, £32,000 to KX plc and £16,000 to MC Ltd.

WD Ltd (and group)

The net consortium debits CTA09/S364 are £100,000 - the amount of the debit for impairment. The group relief claim for this group’s accounting period is £32,000. This is allowed as claimed.

CTA09/S365 restricts the overall debit for bad debts by the amount of the group relief claim, £32,000, to £68,000. The amount of the restriction is carried forward, where it can be used to frank any subsequent impairment reductions by this group to the extent they exceed relevant net debits for the subsequent period.

Example 2

The facts are the same except that both WD Ltd and MC Ltd have made loans to the consortium company. The total impaired debts written off in the period (£100,000) were brought in by

  • WD Ltd £60,000
  • MC Ltd £40,000.

WD Ltd (and group)

Net consortium debit £60,000.

Group relief claim from consortium company £32,000.

Group relief allowed as claimed. Impairment debits of £60,000 - £32,000 = £28,000 are allowed.

MC Ltd

Net consortium net debit £40,000.

Group relief claim from consortium company £16,000.

Group relief allowed as claimed. Allow debits for impairment of £40,000 - £16,000 = £24,000 are allowed.

Example 3

OP Ltd is a consortium company, owned 50% by JL plc and 50% by BV plc. In Year 1,

JL plc lends £30,000 to OP Ltd, and writes down £30,000.

TR Ltd, a subsidiary of JL plc, lends £70,000 to OP Ltd, and, in the same year, writes down £70,000. In that year OP Ltd surrenders losses of £80,000, claimed £40,000 by BV plc, £20,000 by JL plc and £20,000 by GF Ltd, another subsidiary of JL plc.

JL plc and group

Net consortium debit £100,000 (£30,000 + £70,000).

Total group relief claims £40,000 (£20,000 + £20,000).

The total debits for impairment, £100,000, is restricted by the total amount of group relief claimed by the JL group, £40,000, to £60,000. The restriction is apportioned between the two group companies:

JL plc’s claim is reduced by £40,000 x £30,000 = £12,000. Debit allowed £18,000.
TR Ltd’s claim is reduced by £40,000 x £70,000 = £28,000. Debit allowed £42,000.