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HMRC internal manual

Corporate Finance Manual

Loan relationships: consortia companies and impairment: reduction in credits

Subsequent recovery

If an impairment debit has been restricted by CTA09/S365, and there is a subsequent recovery, the creditor can claw back some or all of the previous reduction.

This rule, in CTA09/S367, applies where, in any group accounting period, the amount of debits for impairment brought in for the period are less than total amount of credits from loan relationships held by a consortium member or its group members.

CTA09/S365(2) ensures that where impairment debits have been brought into account, recoveries are taxable as a credit. However, where there has been a previous restriction of the amount of bad debts under section 363, this taxable recovery is reduced or eliminated by the amount of that earlier restriction.

The amount of the reduction of each credit is calculated in three steps.

Step 1 is to find the total amount of debits that have been reduced in previous accounting periods

Step 2 is to deduct from this figure the total amount by which credits have previously been reduced.

Step 3 is to apportion the amount found at Step 2 between the credits.


In the example at CFM35670, WD Ltd wrote off £100,000 of a £200,000 loan to a consortium company. The impairment debit was restricted by £32,000 because of a group relief claim. In the following period WD Ltd regarded £50,000 more of the loan as recoverable and no group member has any new impairment. The taxable recovery credits are reduced by £32,000, leaving £18,000 to be brought in as a taxable credit.

Section 365 ‘wipes out’ the bad debt restriction.

Where more than one member has a taxable recovery credit, each credit is reduced in proportion.