Bad debts: entitlement to tax credit
12.—(1) Paragraph (3) below applies where—
(a)a person has commercially exploited taxable aggregate within the meaning of section 19(1)(a) or (b) of the Act (“relevant commercial exploitation”) and has accounted for and paid the AL chargeable in respect of that relevant commercial exploitation;
(b)that person has made a charge to a third party (“the customer”) in respect of that relevant commercial exploitation;
(c)that person and the customer are not connected;
(d)the whole or any part of the consideration which represents the charge for that relevant exploitation (“the consideration ”) has been written off in his accounts as a bad debt; and
(e)the customer has become insolvent or gone into liquidation.
(2) Any question whether a person is connected with another for the purposes of paragraph (1) above shall be determined in accordance with section 839 of the Income and Corporation Taxes Act 1988(1).
(3) Subject to paragraph (4) below, the person shall be entitled to a tax credit in respect of the amount of AL accounted for and paid by him in respect of the outstanding amount (subject to the provisions of this Part including those provisions relating to the making of a relevant claim to the Commissioners).
(4) Where the charge made for the relevant commercial exploitation in question is less than twice the amount of AL accounted for and paid by a person in respect of that relevant commercial exploitation, the amount of the tax credit which he can claim under paragraph (3) above shall be restricted to half the outstanding amount.
(5) In this regulation and regulation 18—
“claim” refers to a claim in accordance with regulation 15 or 16 and “claimant” shall be construed accordingly;
“the outstanding amount” refers to—
(a)if at the time of the claim no part of the consideration written off in the claimant’s accounts as a bad debt has been received, an amount equal to the amount of the consideration so written off;
(b)if at that time any part of the consideration so written off has been received, an amount by which that part is exceeded by the amount of the consideration written off.
(6) In paragraph (5) above, “received” refers to receipt either by the claimant or by a person to whom a right to receive the whole or any part of the consideration written off has been assigned.
(7) Accordingly, subject to paragraph (4) above, the tax credit arising under this regulation shall be of an amount equal to such proportion of the AL accounted for and paid in respect of the relevant commercial exploitation as the outstanding amount forms of the total consideration.
(8) The whole or any part of the consideration shall be taken to have been written off as a bad debt when an entry is made in relation to that supply in the claimant’s aggregates levy bad debts account (see regulation 9(2)).
(9) Where the claimant owes an amount of money to the customer which can be set off, the amount of the consideration written off in the accounts shall be reduced by the amount so owed.
(10) Where the claimant holds in relation to the customer an enforceable security, the amount of the consideration written off in the claimant’s accounts shall be reduced by the value of that security.
(11) In paragraph (10) above, “security” refers to—
(a)in England, Wales or Northern Ireland, any mortgage, charge, lien or other security;
(b)in Scotland, any security (whether heritable or moveable), any floating charge and right of lien or preference and right of retention (other than a right of compensation or set-off).