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HMRC internal manual

Corporate Finance Manual

Old rules: loan relationships: consortia and bad debts: limit of debits: examples

Examples of limit on consortium relief

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

Example 1

FD Ltd was a consortium company. It was owned

  • 40% by RT plc, the holding company of a large group
  • 40% by WD Ltd, a subsidiary of KX plc
  • 20% by MC Ltd, a singleton company.

WD Ltd made a loan of £200,000 to FD Ltd. FD Ltd couldn’t repay so in Year 1, WD wrote off £100,000 as bad. In the same year, FD Ltd surrendered losses of £80,000: £32,000 to RT plc, £32,000 to KX plc and £16,000 to MC Ltd.

WD Ltd (and group)

The relevant net debits under Para 5A(5) were £100,000 - the amount of the debit for bad debts. The group relief claim for this group’s accounting period was £32,000. That would have been allowed as claimed.

Para 5A(6) restricted the overall debit for bad debts by the amount of the group relief claim, £32,000, to £68,000. The amount of the restriction would have been carried forward, where it could have been used to frank any subsequent bad debt reductions by this group to the extent they exceeded relevant net debits for the subsequent period.

Example 2

The facts are the same as for Example 1, except that both WD Ltd and MC Ltd had made loans to the consortium company. The total bad debts written off in the period (£100,000) were brought in by

  • WD Ltd £60,000
  • MC Ltd £40,000.

WD Ltd (and group)

Relevant net debit £60,000.

Group relief claim from consortium company £32,000.

Group relief allowed as claimed. Allow bad debt debits of £60,000 - £32,000 = £28,000.

MC Ltd

Relevant net debit £40,000.

Group relief claim from consortium company £16,000.

Allow group relief as claimed. Allow debits for bad debts of £40,000 - £16,000 = £24,000.

Example 3

OP Ltd was a consortium company, owned 50% by JL plc and 50% by BV plc. In Year 1, JL plc lent £30,000 to OP Ltd, and wrote down £30,000.

TR Ltd, a subsidiary of JL plc, lent £70,000 to OP Ltd, and, in the same year, wrote down £70,000. In that year OP Ltd surrendered losses of £80,000, claimed £40,000 by BV plc, £20,000 by JL plc and £20,000 by GF Ltd, another subsidiary of JL plc.

JL plc and group

Relevant net debit £100,000 (£30,000 + £70,000).

Total group relief claims £40,000 (£20,000 + £20,000).

The total debits for bad debts, £100,000, would have been restricted by the total amount of group relief claimed by the JL group, £40,000, to £60,000. The restriction would have been apportioned between the two group companies:

JL plc’s claim was reduced by £40,000 x £30,000 = £12,000. Debit allowed £18,000.

TR Ltd’s claim was reduced by £40,000 x £70,000 = £28,000. Debit allowed £42,000.