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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Old rules: loan relationships: consortia and bad debts: summary of Para 5A

Summary of Para 5A

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

FA96/SCH9/PARA5A prevented double relief by making four basic restrictions. It

  • reduced bad debt debits of any period by any amount of group relief claimed in the same period, then
  • reduced any subsequent bad debt recoveries by the amount of any restrictions already made
  • reduced a group relief claim of any period by the amount of bad debt debits brought into account in all previous periods, and
  • reduced bad debt debits of any period by group relief claimed in earlier periods.

The combined effect of these rules was that cumulative bad debt debits and group relief given in total was unlikely, over time, to exceed the greater of either bad debt debits or group relief claims.

The rules also ensured that bad debt debits were restricted, rather than group relief. Group relief is something a company can decide to claim or not to claim, so it could to some extent avoid or control the amount of any bad debt restrictions by managing its claims to group relief.

Who the restriction applied to

The rules in FA96/SCH9/PARA5A applied to each consortium member. If the consortium member was also a member of a group, they applied to each member and its group in turn.

When looking at bad debt debits, the rules took into account all loans made to the consortium company by any group members, not just the consortium member.

In arriving at the total amount of group relief claimed, you included all amounts claimed from the consortium company by any group company, not just the consortium member.