Loan relationships: consortia companies and impairment: reduction in credits: apportionment
Subsequent recovery: apportioned example
In the example at CFM35670, JL plc and TR Ltd both had their impairment restricted by group relief claimed by their group. In the following period
- JL plc regards the £30,000 debt as recoverable
- TR Ltd reduces its bad debt provision by £60,000.
The recovery credits, which would otherwise be taxable, are reduced as follows.
The total amount of recovery credits is £90,000 (assuming no further write-downs, so this is the net amount).
Under section 365 the taxable recovery credits are reduced by the cumulative impairment restriction brought forward, £40,000.
The reduction in recoveries is apportioned between JL plc and TR Ltd as follows.
|JL plc’s recovery reduced by £40,000 x||£30,000||= £13,333, so taxable credits £16,667|
|TR Ltd’s recovery reduced by £40,000 x||£60,000||= £26,667, so taxable credits £33,333|
Of the £90,000 recoveries, £40,000 is covered by the impairment restrictions, leaving net recoveries of £50,000 to be taxed.
There is no longer a cumulative impairment restriction to be brought into future computations.