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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Deemed loan relationships: money debts other than discounts: trade debts: restrictions on write-down

Restrictions on writing down debt

Under CTA09/S324, a company that accounts for a creditor loan relationship on an amortised cost basis can only claim a debit from a write-down of a debt where this arises from

  • an impairment loss, or
  • a release by the company of all or part of the debt.

It cannot claim a debit in respect of a revaluation. This applies both to loan relationships and to money debts treated as loan relationships by CTA09/PT6. It also applies to all such debts, not merely those where the debtor and creditor are connected companies.

This means that companies cannot get relief for a general bad debt provision, or for writing down a debt to the lower of cost or market value, even if such a debit features in the company’s accounts.

If an amount is disallowed for tax purposes, because it is

  • a revaluation of a debt that is not an impairment loss, or
  • a general bad debt provision that was, in a period of account beginning before 1 January 2005, not permitted under ICTA88/S74(1)(j), or
  • a revaluation of a debt that was, in a period of account beginning before 1 January 2005, disallowed by FA96/S85(2)(c)

a credit arising from reversal of the amount will not be taxable.

See CFM41050 where fair value accounting is used.