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HMRC internal manual

Corporate Finance Manual

Old rules: loan relationships: consortia and bad debts: overview


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

The pre-2005 rules on impairment relief for consortia companies are similar to the current rules, apart from accounting changes and references to legislation, and can be viewed at CFM35600 onwards.

Group companies were connected under FA96/S87, and FA96/SCH9/PARA6 prevented them from bringing in debits for bad debts on loans between group members because of this connection.

Companies that were members of a consortium were often not connected with the consortium company under S87, so the bad debts restriction in Para 6 did not apply. Consortium companies could then follow the authorised arrangements for bad debt in Para 5 that required them to bring in debits for bad debts and taxes credits for recoveries.

However, there were ways in which consortium members could benefit from both bad debt debits and group relief, so there were restrictions in FA96/SCH9/PARA5A to prevent this.

Reason for restrictions

A company accounting for its loan relationships under an authorised accruals basis of accounting, as described at FA96/S85(3), would automatically bring into account debits for any bad or doubtful debts in accordance with the ‘authorised arrangements for bad debts’ at FA96/SCH9/PARA5.

A consortium member that made a loan to a consortium company could effectively get double economic relief for the same loss by

  • bringing in debits for bad debts in its accounts, and
  • claiming group relief from the consortium company.

This effect could be achieved by the consortium member’s group as a whole, for example

  • consortium member claims group relief
  • a fellow group member brings in debits for bad debts in respect of its loan to the consortium company.