SCHEDULES

SCHEDULE 4Accounting practice and related matters

Part 1Bad debts and related matters

ICTA

1

In section 74 of ICTA (general rules as to deductions not allowable), omit subsection (1)(j) and subsection (2) (bad debts and related matters).

2

Before section 89 of ICTA insert—

88DRestriction of deductions in respect of certain debts

1

This section applies to debts to which the following provisions do not apply—

a

Chapter 2 of Part 4 of the Finance Act 1996 (loan relationships, etc);

b

Schedule 26 to the Finance Act 2002 (derivative contracts);

c

Schedule 29 to that Act (intangible fixed assets).

2

In calculating the profits of a company's trade for the purposes of corporation tax, no deduction is allowed in respect of a debt owed to the company, except—

a

by way of impairment loss, or

b

to the extent that the debt is released wholly and exclusively for the purposes of that trade as part of a statutory insolvency arrangement.

3

In this section “debt” includes an obligation or liability that falls to be discharged otherwise than by the payment of money.

4

In this section “trade” has the meaning given by section 6(4).

3

1

Section 89 of ICTA (debts proving to be irrecoverable after discontinuance etc) is amended as follows.

2

In that section as it had effect before ITTOIA 2005—

a

make the existing provision subsection (1),

b

for “deduction allowed in respect of them under section 74(j)” substitute “ relevant deduction in respect of them ”, and

c

at the end add—

2

In this section “debt” includes an obligation or liability that falls to be discharged otherwise than by the payment of money.

The references to a debt being irrecoverable shall be read accordingly.

3

For the purposes of this section “relevant deduction”, in relation to a debt, means a deduction made for tax purposes in respect of an impairment loss or release.

3

In that section as substituted by ITTOIA 2005—

a

in subsection (3), for the words from “deduction allowed” to “ITTOIA 2005” substitute “ relevant deduction in respect of them ”, and

b

after that subsection add—

4

In this section “debt” includes an obligation or liability that falls to be discharged otherwise than by the payment of money.

The references to a debt being irrecoverable shall be read accordingly.

5

For the purposes of this section “relevant deduction”, in relation to a debt, means a deduction made for tax purposes in respect of an impairment loss or release.

4

1

Section 94 of ICTA (debts deducted and subsequently released) is amended as follows.

2

In subsection (1) for “relevant arrangement or compromise” substitute “ statutory insolvency arrangement ”.

3

Omit subsection (2).

5

1

Section 103 of ICTA (receipts after discontinuance) is amended as follows.

2

In subsection (4)(b) for “relevant arrangement or compromise” substitute “ statutory insolvency arrangement ”.

3

Omit subsection (4A).

4

In subsection (5) as it had effect before ITTOIA 2005 for “a deduction has been allowed in respect of that sum under section 74(j)” substitute “ a deduction has been made for tax purposes in respect of an impairment loss or a release of liability ”.

5

In subsection (5) as amended by ITTOIA 2005 for “a deduction has been allowed in respect of that sum under section 74(j) or section 35 of ITTOIA 2005” substitute “ a deduction has been made for tax purposes in respect of an impairment loss or a release of liability ”.

6

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7

In section 799 of ICTA (double taxation relief: computation of underlying loss), in subsection (6)(b) after “bad debts” insert “ , impairment losses ”.

8

In section 834(1) of ICTA (interpretation of the Corporation Tax Acts), at the appropriate place insert—

“statutory insolvency arrangement” means—

a

a voluntary arrangement that has taken effect under or as a result of the Insolvency Act 1986, Schedule 4 or 5 to the Bankruptcy (Scotland) Act 1985 or the Insolvency (Northern Ireland) Order 1989,

b

a compromise or arrangement that has taken effect under section 425 of the Companies Act 1985 or Article 418 of the Companies (Northern Ireland) Order 1986, or

c

any arrangement or compromise of a kind corresponding to any of those mentioned in paragraph (a) or (b) above that has taken effect under or by virtue of the law of a country or territory outside the United Kingdom;