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HMRC internal manual

Corporate Finance Manual

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.