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HMRC internal manual

Corporate Finance Manual

From
HM Revenue & Customs
Updated
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Old rules: loan relationships: consortia and bad debts: relevant net debit

Amount of restriction: relevant net debit

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

An updated version of this example under the current rules appears at CFM35650.

Porwin Ltd was a consortium company owned

  • 50% by Ulla (South) Ltd
  • 50% by Rewdon Manufacturing Ltd.

Porwin began to trade in Year 1.

Ulla (South) Ltd and Ulla (North) Ltd were members of the Ulla group of companies.

Year 1

Ulla (South) Ltd lent Porwin Ltd £30,000. Ulla (North) lent it £60,000. Ulla plc lent £100,000 and wrote this down by £50,000. This was a bad debt debit under Para 5 (authorised arrangements for bad debts).

The relevant net debit was £50,000.

Year 2

Ulla (South) Ltd wrote down £20,000 of its loan. Ulla (North) Ltd wrote down £40,000, while Ulla plc reduced its provision for bad debts by £15,000.

The relevant net debit for the Ulla group in Year 2 was

Written off (Para 5 debits) £60,000
   
Bad debt reduction credit £15,000
Relevant net debit £45,000

Rewdon Manufacturing Ltd was a member of the Rewdon group.

Year 1

In this year, Rewdon Manufacturing Ltd made a loan of £100,000 to Porwin Ltd. It had written it down to £40,000, charging a debit of £60,000 under the Para 5 authorised arrangements for bad debts. No other member of the Rewdon group had made a loan to Porwin Ltd.

The relevant net debit for the group for this year was £60,000.

Year 2

There were no bad debt debits or reductions in bad debt provisions.