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HMRC internal manual

Corporate Finance Manual

Deemed loan relationships: money debts other than discounts: trade debts: impairment

Trade ‘bad debts’ are within loan relationships rules

‘Business payments’ are payments that would be taken into account as a receipt of a trade, or a UK or overseas property business carried on by the company. If a debt arises because such a business payment has not been made, any impairment loss sustained by the creditor is dealt with under the loan relationships rules. The same applies if the creditor wholly or partly reverses the impairment provision, and brings a credit into account.

This rule applies to periods of account beginning on or after 1 January 2005 and has the effect of applying the loan relationships regime (including the connected party rules) to ‘bad debts’ arising in a trade or a property business. The previous legislation at ICTA88/S74(1)(j) was repealed for periods of account beginning on or after 1 January 2005.

CFM41040 has more on impairment losses arising on trade debts within the loan relationships rules.