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HMRC internal manual

Corporate Finance Manual

Old rules: loan relationships: consortia and bad debts: subsequent recovery

Subsequent recovery

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

If a bad debt had been restricted by FA96/SCH9/PARA5A(6), and there was a subsequent recovery, the creditor could claw back some or all of the previous reduction.

That rule, which was in Para 5A(8) and (9), applied where, in any group accounting period, the total amount of recoveries from loan relationships held by a consortium member or its group members exceeded the amount of debits for bad debt brought in for that period.

FA96/SCH9/PARA5 (2) ensured that where bad debts had been brought into account, recoveries were taxable as a credit. However, where there had been a previous restriction of the amount of bad debts under Para 5A(6), that taxable recovery was reduced or eliminated by the amount of that earlier restriction.

Para 5A(10) ensured that, when looking at earlier bad debt restrictions, you ignored any that have already been used to reduce taxable recoveries.


In Example 1 at CFM81390, WD Ltd wrote off £100,000 of a £200,000 loan to a consortium company. The bad debt debit was restricted by £32,000 because of a group relief claim. In the following period WD Ltd regarded £50,000 more of the loan as recoverable and no group member has any new bad debts. The taxable recovery credits were reduced by £32,000, leaving £18,000 to be brought in as a taxable credit.

Para 5A(10) wiped out the bad debt restriction.

Where more than one member had a taxable recovery credit, each credit was reduced in proportion.

Subsequent recovery: apportioned example

In Example 3 at CFM81390, JL plc and TR Ltd both had their bad debts restricted by group relief claimed by their group. In the following period

  • JL plc regarded the £30,000 debt as recoverable
  • TR Ltd reduced its bad debt provision by £60,000.

The recovery credits, which would otherwise be taxable, would have been reduced as follows.

  • The total amount of recovery credits would have been £90,000 (assuming no further write-downs, so that would have been the net amount).
  • Under Para 5A(8) and (9), the taxable recovery credits would have been reduced by the cumulative bad debt restriction brought forward, £40,000.

The reduction in recoveries would have been apportioned between JL plc and TR Ltd as follows.

JL plc’s recovery reduced by £40,000 x £30,000 = £13,333, so taxable credits £16,667

TR Ltd’s recovery reduced by £40,000 x £60,000 = £26,667, so taxable credits £33,333

Of the £90,000 recoveries, £40,000 would have been covered by the bad debt restrictions, leaving net recoveries of £50,000 to be taxed.

There was no longer a cumulative bad debt restriction to be brought into future computations.