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HMRC internal manual

Corporate Finance Manual

Old rules: loan relationships: authorised accounting methods: accruals basis: amounts payable in full

Bad debts: amounts payable in full

This guidance applies to periods of account beginning before 1 January 2005

An authorised accruals basis

  • does not allow a write down of the value of the debt instrument at any time (FA96/S85(2)(c))
  • assumes that, from the creditor’s point of view, every amount due will be paid in full as it becomes due (S85(3)(c)) but
  • requires appropriate adjustments to be made under the authorised arrangements for bad debt as described in FA96/SCH9/PARA5.

These authorised arrangements for bad debt are not applicable where there is a connection between the debtor and creditor. As a consequence connected parties are unable to depart from the primary assumption that all amounts will be paid in full (CFM81100+). This does not apply to foreign exchange losses - see below.


Parmit Ltd has invested in a £50,000 3-year bond. At its accounting date at the end of Year 1, it appears that the issuer is unlikely to be able to repay the bond.

The authorised accruals basis will

  • assume all amounts are payable as they become due, and
  • make adjustments for bad debts in accordance with the authorised arrangements.


A write down in the value of a debt is allowed where

  • the debt is denominated in a foreign currency, and
  • the value of the currency changes so that the value of the debt in the local currency will be reduced in the accounts.

For example, suppose that a company lends $100,000 at a time when $100,000 is worth £65,000. At the year end, the dollar has weakened and $100,000 is only worth £60,000. The company has a forex loss of £5,000. Nothing in S85 prevents this loss from being allowed.